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School of Sustainable Development of Society and Technology

Master Thesis
15 ECTS-points,
Business Administration,
Advanced level,
Spring term 2008

Entrepreneurship and Microfinance-

A tool for empowerment of poor-
Case of Akhuwat-Pakistan

Thesis Tutor
Tommy Torsne
Zahid Mustafa zahidbinmustafa@gmail.com
Nodirbek Ismailov nodirbekismoilov@yahoo.com
Västerås June 2008

In the name of Allah, the most beneficent the most merciful.

We would like to express our endless thanks to everyone that helped to make this thesis possible.
First of all, we would like to give foremost and special thanks to our advisor, Tommy Torsne for his
guidance and recommendations during and especially the time after seminars which he spared for us.

We will never forget the support and knowledge contribution of Leif Linnskog during the whole
program and we felt his contribution of knowledge was of great assistance during our research work.

We also would like to thank Dr Amjad Saqib, executive director of Akhuwat, for cooperation and
providing us with all important and essential information. We also acknowledge his generosity for
the time which he spared for interview even though there is a big time difference between Pakistan
and Sweden.

We also acknowledge great help from the Microfinance experts, especially Zahid Hussain Awan,
Manager of International Banking services, Qatar International Islamic Bank. We thank him for
reserving his valuable time and effort to answer our questions.

Especially we would like to express our thanks to all our friends for their supports who always
asked us about thesis process and achievements, encouraged and inspired us to finish this thesis.

Lastly, we would like to give special thanks to our parents whose prayers enabled us to complete
this work. They raised us, taught us, supported us and loved us. We dedicate our work to them.



Purpose: Our main purpose is to carry out a research on combining microfinance with
entrepreneurship for poverty alleviation, empowerment of poor and sustainable development.
Target group: Students, researchers in Microfinance field, MFI’s, NGO’s and Governmental
Research Question: How do micro entrepreneurship, social entrepreneurship and microfinance
serve as a combined tool to reduce poverty, empower people, and contribute to sustainable
development in Pakistan?
Approach: We used qualitative approach for research. The data have been collected through
interviews which held as structured and unstructured, and as secondary sources web page of the
organization, statistics of Pakistan and Book of organization have also been consulted.
Delimitations: Due to distance problem between Pakistan and Sweden and, it was difficult to
organize interviews at large scale from borrowers and this can reflect limited information about
micro entrepreneurship. It is worthy to say here that Islamic microfinance is quite new practice and
very limited data was available. With this, we mainly emphasized on microfinance and
entrepreneurship as a combined tool, therefore, there is not enough discussion on Islamic
microfinance. But we try to elaborate a complete picture of Islamic microfinance. Originality/value:
This paper emphasizes on both Microfinance and Entrepreneurship, as case study we choose
Akhuwat organization which started to give loans to poor people without interest. Also we focused
on Social Entrepreneurship side of organization which challenges to other MFI’s with innovative
type of loaning. Research will give a vision to Akhuwat and other micro financing organization that
how they can develop activities more successfully.
Future implications: During our research we investigate that there is need to carry out more
research on lending methods other than solidarity group. The other area is micro entrepreneurship
that needs to be more investigated by researcher because in developing countries micro business
with only traditional ways will not be so successful. There will be need of more innovation in
production system or in business processes. Islamic microfinance is quite new way for lending loan.
It is needed that researcher of western world also do research on this method. So that clear result
should come and method becomes more mature.
Social Entrepreneurship also need to be discovered from many points, especially relation with profit
and non for profit, public, private and nongovernmental models.
Keywords: Entrepreneurship, Microfinance, Social Entrepreneurship
Paper type: Master Thesis


ADB (Asian Development Bank)

AKRSP (Agha Khan Rural Support Program)
CED (Credit and Enterprise Development)
CPI (Consumer Price Index)
FY (Fiscal Year)
GDP (Gross Domestic Product)
HDI (Human Development Index)
HID (Human and Institutional Development)
IMF (Islamic Micro Finance)
IMFIs (Islamic Micro Finance Institutions)
LSE (Large Scale Enterprise)
MDG (Millennium Development Goals)
MFBs (Micro Finance Banks)
MFIs (Micro Finance Institutions)
MTDF (Medium Term Development Framework)
NRSP (National Rural Support Program)
NWFP (North West Frontier Province)
PKR (Pakistani Rupee)
PLS (Profit and Loss Sharing)
PMN (Pakistan Microfinance Network)
PPAF (Pakistan Poverty Alleviation Fund)
PRSP (Punjab Rural Support Program)
SBP (State Bank of Pakistan)
SME (Small and Medium Enterprise)
WHO (World Health Organization)

Table of Contents

1 Introduction……………………………………………………………………………..….…..7
1.1 Motive and Background ........................................................................................................ 7
1.2 Research Question ................................................................................................................ 8
1.3 Target Group of research ..................................................................................................... 8
1.4 Aim…………………………………………………………….………………………………………8
2 Methodological Approach ...................................................................................................... 9
2.1 Scientific Ideals ..................................................................................................................... 9
2.2 Research strategy .................................................................................................................. 9
2.3 Methods for data collection ............................................................................................... 10
2.3.1Interview ........................................................................................................................... 11
2.4 Structured Interview Design-conducted from borrowers ................................................... 12
2.5 Open ended Interview ......................................................................................................... 12
2.6 Secondary Data Sources ..................................................................................................... 13
3 Literature review and Theoretical framework ...................................................................... 14
3.1 What is Microfinance .......................................................................................................... 14
3.1.1 Microfinance Activities .................................................................................................... 14
3.2 Microfinance-A Development Tool ..................................................................................... 15
3.2.1 Financial Intermediation ................................................................................................. 16
3.2.2 Social intermediations ..................................................................................................... 16
3.2.3 Enterprise Development Services .................................................................................... 16
3.2.4 Social Services ................................................................................................................. 17
3.3 Microfinance Models .......................................................................................................... 17
3.3.1 Grameen Model ............................................................................................................... 18
3.3.2 Progressive lending-Banco Sol Model ............................................................................ 18
3.4 Microfinance-Interest free(Islamic Microfinance) ............................................................ 19
3.5 Empowerment .................................................................................................................... 20
3.6 Entrepreneurship…………..……………………….…………………..….……………………...21
3.7 Micro Entrepreneurship………………………………………………………………. .............. 23
3.8 Social Entrepreneurship .................................................................................................... 23
3.8.1 Definition of Social Entrepreneurship…………………………………..…..………...……...24
3.8.2 Models for Social Entrepreneurship………………………………...…..…………………….26
3.8.3 Services For Poor - A New Phenomenon………………………………..………….………..28
3.8.4 Sustainable Development and Social Entrepreneurship…………………………………….29
3.9 Conceptual Framework…………………………………………………….……………………..30
4. Pakistan, Microfinance, Entrepreneurship –Empirical findings .................................... 33
4.1 Pakistan- Some basic statistics ........................................................................................... 33
4.2 Microfinance market in Pakistan........................................................................................ 34
4.3 Practices of Microfinance in Pakistan................................................................................ 35
4.4 Islamic Banking Practice in Pakistan ................................................................................. 35
4.5 SBP and Islamic Microfinance ........................................................................................... 36
4.6 Entrepreneurship in Pakistan ............................................................................................. 36
4.7 Borrowers of Akhuwat – Stories of Micro enterprises ……………...……………………….37
4.8 Poverty alleviation and empowerment strategy.................................................................. 38
4.9 Akhuwat-Some historical facts............................................................................................ 40
4.10 Organizational structure................................................................................................... 40

4.11 Philosophy of microfinance, lending by Akhuwat ............................................................ 40
4.12 Expansion of Outreach of the company ............................................................................ 42
4.13 Financial management of Akhuwat .................................................................................. 43
4.14 Profitability and Sustainability ......................................................................................... 43
5 Analysis of data and interpretation ..................................................................................... 45
5.1 Empowerment and Microfinance- Need of combined strategy in Pakistan........................ 45
5.2 Expanding outreach of Akhuwat-Empowering more people .............................................. 45
5.3 Why Akhuwat adopted Islamic microfinance-Was there any need? ................................... 46
5.4 Akhuwat’s Innovation for lending loans ............................................................................. 48
5.5 Challenges to Akhuwat’s way of microfinance ................................................................... 49
5.6 Social services and intermediation by Akhuwat ................................................................ 49
5.7 Contribution of Micro entrepreneurship in micro enterprise and some success stories of
Akhuwat .................................................................................................................................... 51
5.7.1 Gulzar Ahmad-A microentrepreneur bring quality in competitive market...................... 52
5.7.2 Sofia BB- Innovation in Production system ..................................................................... 53
5.8 Social Entrepreneurship and Akhuwat ............................................................................. 53
5.9 New way of serving poor in Microfinance field ................................................................. 55
5.10 Contribution of Akhuwat to sustainable development ...................................................... 56
6 Conclusion ............................................................................................................................ 59
Reference List

1 Introduction

In this section, we discussed motive and background of study and readers find basic introduction of
research topic. This part leads to research question and then introduce the target group.

1.1 Motive and Background

Pakistan is one of the most populated countries of the world with 164.7 million inhabitants with
population growth rate 1.8 percent. Two third of the population is living in rural areas. According to
SBP (SBP, 2007), working age population (15-59 years) is increasing which was 51% in 1998 and
in 2006 it is 57%.
In 2006, about 23.94% population is living under the line of poverty which was 34.46% in 2002.
According Global Monitoring Report 2006, there is significant increase in economic growth. There
is improvement in Social Sector Development and now Pakistan has shifted from Low Human
Development group to the category of Medium Human Development. Despite all these
improvements, poverty is a major issue which every government is combating against.
Pakistan is a country with high population growth with increasing ratio of labor force. According to
Economic Survey 2006-07, Pakistan has 50.5 million active labor forces while 3.1 million out of
this is unemployed. If we look unemployment gender wise, despite of women ratio of population
which is 49.6%, ratio in labor force is only 25 percent (10.08 million out 50 million) of total labor
force. Government has taken many steps to increase women participation in labor force, still women
ratio is very less to over all labor force and it is not matching to world standards and trends about
women participation in business and job opportunities. (SBP, 2007)
All facts show potential to work in microfinance to encourage people and specially women to
develop their own entrepreneur so that men in general and women specially can contribute a
productive part of society to make it a sustainable. To combat unemployment, only big companies
or public sector are not enough for job creation but it would be better if people start their own
business for making society productive.
Microfinance is not a new idea; it has been successfully implemented by Grameen bank. Back to
1976, Muhammad Yunus took initiative of lending loans by developing solidarity group of women
in Jobra village. Many MFIs adopted idea adding with new strategies and now serving poor in
effective way. This successful approach is now famous as Grameen Model (Khan, Rehman, 2007).
Microfinance is now being considered as one of the most essential and an effective driving force for
poverty reduction and alleviation. Akhuwat’s case attracted us because of its unusual strategy for
microfinance, different from Grameen bank. Akhuwat lends loan without interest to poor people of
society but taking one time membership fee and this money is used for operating expenses. Money
in credit comes from donations that have no demand of return.
While social entrepreneurship plays great role as looking to the world real and see clearly what is
happening and feel responsibility for financially weak people and help them as much as they can. It
is also a big challenge to the entrepreneurs and big organizations that they should take steps to
eliminate unbalance between different levels in society. In other way, this way encouraged us to
choose this problem and also we, both, are from Asian countries (Pakistan and Uzbekistan), it
means we are in the same boat and we have the same problems in our countries regarding the poor
layer of society and living standards of people. We think that empowerment of poor people by
microfinance and with combination of micro entrepreneurship is a great idea. You can never help
people just giving money but you can help people giving them job and help to create their small
businesses in order to optimize their share of production to the society. All these issues lead to
research on this topic that how microfinance is contributing for entrepreneurship in low income
communities of developing countries, how sustainable society is evolving as the result of doing own
business in low income communities and how Akhuwat’s way of microfinance is supporting all of
this process. To analyze all these issues, we formulate following question for research on our topic:

1.2 Research Question:

How do micro entrepreneurship, social entrepreneurship and microfinance serve as a combined tool
to reduce poverty, empower people, and contribute to sustainable development in Pakistan?

1.3 Target Group of research

Entrepreneurship and Social Entrepreneurship is emerging thread in business and lot of research is
doing on this. Much research work has been done on microfinance and entrepreneurship while
discussing Grameen model. But our research will lead a new horizon for both fields in term of
combining microfinance and entrepreneurship and especially we are investigating interest free
microfinance with entrepreneurship. Research will give a vision, to Akhuwat that how they can
improve microfinance lending process, and other Microfinance institutions (MFIs) that how they
can develop process in more effective way. Research will also provide a new horizon to MFIs
towards a new approach of microfinance. Further, students, researchers in Microfinance field,
NGO’s and Governmental organizations can extend research in this area to address the issue of
poverty alleviation and empowerment of poor.

1.4 Aim
Most of research has been done either microfinance or entrepreneurship separately. But in our
opinion there is close relationship between these two fields. As social entrepreneurship is doing a
lot for credit pool of MFIs with social services, micro entrepreneurship can be found in micro
enterprise. Our aim is to conduct research on the issue that how entrepreneurship and microfinance
can work as a combined tool for poverty alleviation and empowerment of poor.

2 Methodological Approach

This section gives view to readers about scientific ideals and research strategy, adopted in this
research. Different methods for data collection have been discussed and readers find the motive of
selecting interview as tool for data collection. In last, issues regarding structured and unstructured
interview and secondary data discussed.

According to Fisher (2004), research in management and business is different from other research
fields because in management and business research, there is vital role of relationship between
theories, practice, knowledge and actions. So keeping in mind this background, in the following
sections there is our proposed methodological approach which we will adopt in our thesis work.

2.1 Scientific Ideals

For our research, which philosophy is suitable to conduct research, and which tradition we should
follow to find correct findings from our research work?
In today world, science has major contribution in development and advancement of society. To do,
valuable knowledge and continuous research make it possible. Now important question arise how
this research work is being conducted in different fields. Different research ideals require different
methodology, data technique and research methodology. Most famous approaches are
interpretivism, positivism and realism (Saunders, Lewis, Tronhill,2007) but important and most
using approaches are positivism and interpretivism. It is important to note that every approach or
ideal use different research techniques so ultimately research will conduct and proceed in different
According to Neuman (1994, interpretation is based on observation, and for observation, detailed
interaction with people is needed. For this, long interviews are conducted and then interpret data
from these interviews. While in positivistic approach, consider any object, doing experiments and
then precisely comparison facts, numbers while extracting results. In contrast, interpretive approach
use huge amount of qualitative data and from this huge amount, researchers interpret and deduct
result. So in interpretive approach, researchers emphasize on subject while doing research, but not
on any external object and do not compare it to any other object.
As our research question, we are conducting research on relationship between microfinance and
entrepreneurship for poverty alleviation and empowerment of poor. We will study microfinance but
with this we uncover this issue so that we can see microfinance while effecting entrepreneurship,
either positive, negative or none. In our opinion, our research approach is not completely positivistic
because of there is no any comparison of special object, doing experiment or survey and then
deducts result but it is combination of objective and subjective mechanism. We will see subjectively
see how social entrepreneurship and microfinance contributing in poverty alleviation. But sure with
this we will study and explore underlying mechanism of microfinance. So our approach is not
following only one approach but to both. Other reason to support our arguments that we conducted
long interviews with many borrowers, experts then extracts information.

2.2 Research strategy

Researchers use strategy and follow outline to do their research work. Either they collect
information, empirical data and test it and generate any law or theory or they generate hypothesis
from already present theories and knowledge. After this they collect empirical data and scrutinize
hypothesis with collected empirical information. Both methods differ from each other in modality
by which these strategies are conducted and the literature available on the topic of research. These

two famous strategies for conducting research are deductive and inductive. To choose one of any
strategy it depends on the choice of topic for research.
In deductive approach, researchers consider and study, first of all, theory, then generate hypothesis
and this hypothesis is tested by the help of empirical data that resulted in conclusion drawn.
Conclusion depends on data and information which is available during research (Bryman, 2004). So
conclusion will be more reliable if more data is available. In this approach, researcher build
hypothesis on the basis of his/her knowledge and theories available and then scrutinize hypothesis
with empirical data. According to Bryman (2004), normally, deductive approach is attached with
quantitative research.
On the other hand, the inductive approach is being done by studying and taking into consideration
the empirical observation first and then researcher goes on to build hypothesis which leads to the
development and consideration of new theories or making addition in existing theories(Bryman,
2004) . In inductive approach, human observations have keen role to pursue research.
It is important to include here that when there is lot of availability of literature on research topic,
probably deductive approach is used. So it’s a little easy way to develop a firm background on
research topic rather than inductive approach. While, if there is less amount of literature available
and there is debate on any topic, for this, most suitable way is inductive. Therefore researchers have
concern to collect empirical data as much as possible so that they can get required knowledge from
it and then generate a new theory or contribute in the old one. It is a notable point that in deductive
approach, consideration of theory comes before hypothesis and empirical findings while in
inductive approach, empirical findings and research come before theory and hypothesis.
In our thesis research, we used deductive method because of literature availability and its flexible
design. But some part of research work has no plenty of literature support. These parts included
interest microfinance and micro entrepreneurship. But still there is sufficient work and literature is
available and by the help of this empirical data, we can continue our research work.

2.3 Methods for data collection

Till this point, we have discussed about scientific ideals- positivistic, interpretivist and realism.
After this, we discussed different approach for research and particularly we see inductive and
deductive and consider some points about differences between two approaches and saw which
approach is suitable in what situation. Now after deciding which ideals we will choose, the research
approach, move to discussion on methods for data collection. As Brewerton, Millward(2001)
described that selection of research work suggest one or more methods for data collection. But it is
important to selecting any method, see advantages and disadvantages of each data collection
methods and think which method is useful for your study so that maximum and correct information
can be collected. Because of, research works mainly base on empirical data, so selection of data
collection methods become important in this regard. These methods generally divide in two
categories, qualitative and quantitative.
Quantitative methods used to collect data in numbers, graph or figure. Quantitative methods used
mainly in quantitative research design and in this type of research study is objective and emphasize
on variable or object by which information collect. According to Neuman (1994,pp.97), variable is
a central idea in this research design. Therefore for measuring values by comparing this object or
variable, researcher needs quantitative methods. For example, education is a variable but it has
different values by different people like school education, college or university education. So in
quantitative research, and in methods, it is important to selection of variables and their attributes
because study depends upon these variables and attributes. As Neuman (1994), variables are of
three types, independent, dependent and intervening variables. Variable which identifies condition
that act on something else is independent while dependent variables are those that come on result of
another variable and intervening variable come between relationship of independent and dependent
While Qualitative methods use to collect data in words, pictures etc. Qualitative methods use in
inductive research process. These methods use when there is need of in depth study about behavior
and characteristic of research topic. Therefore in qualitative methods, like interview, huge amount
of data is being collected and from this amount, required data is collected. According to Silverman
(2000), quantitative research and methods used in this research simply reports about object and
reality but on other hand, qualitative methods and research cover the behavior and values of
research. The other major impact of qualitative methods is flexibility which help researcher to
collect data in depth and in detail.
There are advantages and disadvantages of both methods but we cannot conclude which one is more
suitable. Actually, the selection of methods mainly depends upon the nature of research topic and
availability of data. If on one side, qualitative methods facilitate researcher in term of flexibility in
data collection but on the other hand this flexibility produce a huge amount of data. And for
researcher, it may become difficult to extract correct and precise data. But in quantitative methods,
researchers gather precise data. One important argument that qualitative researchers give in favor of
qualitative technique is that, dependency on only quantitative methods may become cause of
missing of social and behavioral construction of variable or object (Silverman, 2000). Therefore,
there is no one solution. As Brewerton, Millward (2001, pp.11) stated that “In practice, qualitative
methods can be used to generate quantitative data (e.g. interviews ca be content analyzed for
different themes and these themes can then be frequency analyzed) and vice versa (e.g. a survey
incorporating a series of open comment boxes)”.
According to Fisher (2004), methods are used for data collection are interviews, questionnaires,
panels, observations, documents or databases etc. These methods then major categorize in to two
streams which are qualitative and quantitative. Surveys, questionnaires, databases are used as
quantitative method while interviews, observation etc used as qualitative methods. Generally we
specify which methods are suitable for which research strategy but according to Fisher (2004),
during research, researcher can use either qualitative or quantitative methods or combination of both.

2.3.1 Interview
A famous tool for data collection is interview which is used by researcher on any stage of research
work. There is flexibility while conducting interview and information gathering through interview,
because researcher can conduct interview at any time and researcher gets information in huge
amount. As mentioned by Brewerton, Millward (2001), interview can be combined easily with other
data collection methods also. For example, questionnaire can be conducted by help of interview.
With these advantages, the major disadvantage with interview is difficulty to collect precise
information from huge information gathered by interview. With useful information, lot of useless
information is also gathered during interview. So filtering information is probably difficult from
huge amount of information, gathered by interview. According to Fisher (2004, pp132-133),
interview can be conducted in open, structured way, or combination of both techniques, base on
flexibility of researcher and respondents and research work. In open interview, interviewer and
interviewee talk openly with each other like discussion. Researcher have prescribed plan and
questions to be asked but he/she give open room to respondents to give answer as much as flexible.
Advantage of this way is that interviewee feel freeness to answer questions and interviewer can get
information which he/she can not get normally. But major disadvantage is that a lot of raw
information is gathered with useful information and researcher may get problem to sort out the
useful one. The other way to conduct interview is pre-coded. In this, researcher asks pre planned
questions, no less no more. In this type, there is no flexibility to ask questions or put any additional
questions. It may look like an interview cum questionnaire. Advantage is that researcher get precise
information but chances of missing of some issues which can be raised during interview but not
raise. While, third way of conducting interview which is semi-structured, lies in between of these
two approaches. Researcher have planned questions on research issue but with this he ask
supplementary questions during questions to explain issues and then sub issues (Fisher, 2004)
We adopted qualitative approach for data collection and use interview for this. We conducted open
ended interviews with managing Director of Akhuwat and some experts. While structured
interviews were used in case of borrowers. Aim of these interviews is to collect information about
working methodology of microfinance, problems, future aspects, effect on poverty alleviation,
social entrepreneurship, micro entrepreneurship, working structure of microfinance-interest free and
other aspects. While in secondary data, we emphasized on State Bank of Pakistan reports, other
MFIs’s reports, reports from Pakistan Microfinance Network, Finance department, Government of
Pakistan and other organizations and we selected information in a more diversified way.

2.4 Structured Interview Design-conducted from borrowers

Motive behind to conduct structured interview from borrowers was that poor borrowers are illiterate
and were not able to fill the questionnaire. Therefore we conducted structured interview in Urdu
language so that they can respond easily and we can get full information.
Interview was designed with open and close ended questions. Strategy to develop such kind of
questions is due to providing facility to respondent to give answers with full detail. And where we
need fixed value of our questions, we need close ended questions. Questionnaire is designed with
six major portions including personal data, information about business and financial status, micro
entrepreneurship, micro finance and poverty information. Start interview with personal data
including name, address, gender etc and then switch to business information which followed to
details about financial information of business. The next part of questionnaire is leading to getting
data from respondents about micro entrepreneurship. Desire of this part of interview to come in to
know about any kind of innovation, risk taking factors and profitability which respondent use in
his/her business different than others. In this part, most questions are open ended, because we want
to give full room to respondents to express their ideas, implanted in their business. This part follows
to questions about micro finance. Objective of this part is to access to thoughts of user about micro
finance, availability of finances, difficulties and advantages of micro finance to their business. Last
part of interview emphasizes on poverty alleviation, respondents’ old financial situation, current
position, and how all this story of micro finance and entrepreneurship is taking part in alleviation of

2.5 Open ended Interview

We used unstructured interview for collecting information from Akhuwat’s Managing Director and
experts in Islamic microfinance. Major reason is to repository of maximum information from
interviewees and asking additional questions to respondents during interview.
Our interviews compromised questions about working methodology of micro finance, what make
different microfinance from general banking, is micro finance worked only in developing countries,
disadvantages of microfinance, Akhuwat history, motive and financial position. With this, we
include questions about microfinance-interest free, it working methodology, what make different
from general microfinance and practicability of microfinance-interest free. We also raised questions
about membership fee, interest rate, and its future prospect. We emphasized on issues in depth like;
is there any difference between interest rate and membership fee; there is no difference between
Islamic Banking practices and microfinance-interest free practices; this system may find difficulties
in future if more people join this system.
2.6 Secondary Data Sources
Secondary data sources have keen important to find information that is already proved and
researched. These sources are used to formulate effective research questions, develop theoretical
framework, and source for empirical data. We consulted Mälardalen University Library, different
journal databases and research articles, websites, reports about poverty, MFIs, and micro
entrepreneurship. Empirical data is contributing a portion of our thesis work. We are using State
Bank of Pakistan annual reports, National Human Development Reports, A working paper
‘Challenges and Prospects’ of Microfinance in Pakistan’ by Khushhali Bank Pakistan and different
reports from Pakistan Microfinance Network , and other many research papers.

3 Literature review and Theoretical framework

In this part, we described different theories and readers will look on previous research on the
research topic. We discussed microfinance, its different models and how microfinance contributes
in poverty alleviation, and theories about entrepreneurship and social entrepreneurship. In the end,
on the basis of literature review, we build conceptual framework that will use while analyzing
empirical data.

3.1 What is Microfinance?

Poor people are not able to access loans from commercial banks normally because of lack in
guarantee and collateral. But there are many other reasons also involved for which commercial
banks were not willing to finance poor. These reasons are included that poor have less education, no
proper experience and training, high expenses on transactions of small loans and lower rate of profit.
Therefore limited option to access loan leads to push poor people in more poverty. This situation
resulted in emerging the idea of micro lending and microfinance. Microfinance, therefore, a way to
finance people, those have no collateral or any property for guarantee. Microfinance is a way of
financing to poor for their business, to alleviate their poverty, empowering them, giving social
benefits on sustainable way. According to Agion & Morduch (2005, pp.3), due to microfinance,
there are many possibilities have emerged including extending markets, reducing poverty and
fostering social change. But there is wide spread confusion that microfinance is just lending loan to
poor but as we mentioned that microfinance is no more only loans but covering the issues of
poverty alleviation, putting social impact on poor and educating poor to savings. Therefore, MFIs,
today, not only NGOs but serving as a complete banking system. This discussion lead to us that
microfinance is a form of financial services for poor to help them for their business activities by
giving micro credit.
According to Ledgerwood (2000, pp.1) “Microfinance has evolved as an economic development
approach intended to benefit low-income women and men. The term refers to the provision of
financial services to low –income clients, including the self employed.” While according to ADB
(2008) “Microfinance is the provision of a broad range of financial services such as deposits, loans,
payment services, money transfers, and insurance to poor and low-income households and, their
microenterprises.” These statements are elaborating that microfinance is a financial services but
designed specifically for poor to improve their lives in sustainable way.

3.1.1 Microfinance Activities

Economic activities base upon sellers and buyer and their capacity. Sellers, before market their
product, look at buyer intention and capacity. On the other hand, banking activities depend on both
sellers and buyers. Lenders (financial institutions) finance both sellers and buyers for their activities.
Commercial Banks invested in projects at large scale while with this, banks invested in consumer
finance also. While MFIs usually don’t invest in consumer finance, but give finance only for micro
enterprise. MFIs encourage people to lift up their standards by doing businesses and earning from
them and this is a consistent and sustainable way. In fig (2), microfinance is dedicated only to poor
and explicitly for business activities. But with this, there are some indirect impacts of microfinance
on the micro borrower which are alleviation of poverty, improvement in healthcare, increase in
literacy and other social impacts.

MFIs Finance Micro
Pay back Entreprenurers
Pay back Effect Effect
Finance Finance Pay back

Buyers Sellers Health Social

Literacty Poverty
Fig 1: Economic activity by commercial banking

Fig 2: Economic activity by MFIs

According (Ledgerwood, 2000, pp.1), there are many activities and characteristics are included in
microfinance. Some are:
• Small and short term loans
• Social collateral rather than financial collateral
• Access to larger amount of loan if repayment performance is positive
• Search and access the real poor and their business demand
• Continuous monitoring of business
• Loan on higher interest rates due expensive financial transactions and risk factor
• Easy way to access finance, therefore not too much paper work, and easy and short
• Offering saving services to borrowers even for smallest amount
• Offer training services to borrower’s business development
• Literacy training to borrowers so that they can come up with competence to daily business
problems and its solutions
• Health care, social services and other skill training services to provide borrower a
sustainable base for their business development

3.2 Microfinance-a Development Tool

In developing countries, people from low income communities have innovative idea for their
business, even as shop keeper or house hold products manufacturer, but they have no financial
resources to implement their ideas. This low economic activity in low income communities due to
lack of financial resources lead them to more poverty and poor life standards. Generally financial
services cover savings and credit activities and there is same concept about MFIs. But according to
Ledgerwood (2000), MFIs work for general financial services with this they provide insurance and
payment services to their clients. But important aspect of MFIs is not only financial intermediation
but also providing social intermediation and social services to their clients. Social intermediation
and social services contain many activities including trainings, management development, and
financial literacy activities. Furthermore, many MFIs, arrange get together where experienced
people guide others, where they give useful suggestions, tips and other tactics for their business.
Therefore microfinance is providing financial services with social services. Normally, social
services are not applicable in general banking system. So, microfinance is not simply banking

system but development tool, combining both financial and social intermediation (Ledgerwood,
2000). In following, there is discussion about different services provided by MFIs.

3.2.1 Financial Intermediation

Financial intermediation is by far the most primary objective of MFIs because without loan/money
social intermediations can not work. As prior discussions that poor face barriers to access finance
from general financial service institutions. MFIs, in this regard, become a bridge to access finance
and in result to poverty alleviation, health care and education literacy (Ledgerwood, 2000). MFIs
are providing many financial services including credit, savings, insurance credit cards, payment
services etc. But almost all MFIs are lending credit by default. It is not necessary that every MFI
should facilitate their customers by all these services but MFIs can facilitate anyone of these
services or all. According to Ledgerwood (2000,pp.66), “The choice of which financial services to
provide and the method of providing these services depend on the objectives of MFI, the demands
of its target market and its institutional structure.”

3.2.2 Social intermediations

Social intermediation that cover the issues of group formation, leadership training and cooperative
learning, is secondary role of microfinance for borrowers of MFIs. Development in Social capital is
a basic ingredient of sustainable development in poor’s life and especially in society. Ledgerwood
(2000, pp.64) defines social intermediation that “the process of building the human and social
capital required by sustainable financial intermediation for poor.” Now question rise, how social
capital be acquire and strengthen? Social capital is actually links between clients of a group and
multiple groups, and between MFIs and borrowers. These links establish on the basis of strong
foundation of trust and cooperation (Agion&Morduch ,2005). The ratio of social capital will
increase with increase in business activities among members, and financial transaction between
lender and borrowers.
Social capital normally develops through group activities but there are other ways to develop it by
individually. In group social intermediation, activities performed inside the group with some help
from outside to develop institutional capacity and human resource. In group, most of members
belong from remote areas, having less literate and experience about business and financial
transaction. So from group formation to selecting leader, developing networks and working
mutually, MFIs support borrower to deal with these issues. Therefore, these members need training
in record keeping, book keeping, accounting, training about business activities and tactics, and
negotiation skills Ledgerwood (2000).

3.2.3 Enterprise Development Services

MFIs, not all, support to borrowers, either in group or individual in different enterprise development
services like marketing, business and accounting training etc. This service can be divided in to two
parts, enterprise formation and enterprise transformation. In enterprise formation, MFIs provide
technical support to group or individual in start up of business, development and maturing ideas and
maturing the skills. While, in transformation of enterprise, MFIs arrange trainings for their
borrowers, workshops and get together for developing latest skills in their business area
(Ledgerwood, 2000).

Minimalist Approach
One “missing piece” credit Intergrated Approach
Financial and non financial

Financial Intermediation
• Working Capital 
• Fixed asset loans 
• Savings 
• Insurance

Social Intermediation
• Group formation 
• Leadership training 
• Cooperative learning 

Enterprise development
• Marketing  
• Business training 
• Production training 

Social Services
• Education 
• Health and 
• Literacy training

Fig3: Minimalist and Integrated Approaches to Microfinance (Source: Ledgerwood ,2000,pp.65)

3.2.4 Social Services

According to microfinance practitioners, poverty can be addressed by financing poor for productive
activities which in result come up to their access to life necessities. But financial lending is only a
one tool to poverty alleviation. Poor needs more than microfinance to address the problems of
poverty and accessibility to other life needs like food, health, family planning, education, social
support network and so on. Therefore, Ledgerwood (2000) addresses that MFIs serve to their clients
with additional social services with financial intermediation. The best way to contact with their
clients is in the form of group, that is the easy way to literate them, giving health care and other
facilities. So in this way, MFIs role is productive in the life of poor by offering financial services
with supportive services. These supportive services, actually, play important role in sustainable
human development and livelihood of the poor (Khan , Rahman, 1998).
According to Ledgerwood (2000), social service should not mix up with financial or social
intermediation because financial intermediation is primary service providing by MFIs. That means,
there should be no additional cut off from loans in account social service but it should be provide by
secondary means or by subsidies.

3.3 Microfinance Models

In spite of having innovative ideas for business, if there is no access to financial resources, these
ideas go in vain. Microfinance changes whole scenario and reaches out poor to materialize their
ideas and get financial benefits. According to Sengupta, Aubuchon (2008), there are now nearly 70
million poor people who are getting benefits from 2500 MFIs in over 100 countries by
Conditions of poor are different in different countries in world. These conditions are related to
social, ideological and political issues (Weiss, Montgomery, 2004). Therefore, there are some
distinctive differences between approaches and motive of microfinance. We will see briefly two
approaches, one is very famous Grameen Model, originated from Bangladesh and other is Banco
Sol, in Bolivia.

3.3.1 Grameen Model

In Grameen model, primary unit to whom lending fund is a group of 5 members that organize and
apply for loan. In first round, loan is granted for two members to invest in their business. If these
two members become successful to repay amount, then four to six weeks later, next two members
are granted for loan. Last one member will be eligible for loan if previous two repay loan
successfully. Repayment of loan open door for next loan and then go on if all members repay loan
successfully. If anyone of group member will default in her loan, whole group will disqualified for
further loan. So this rather to financial collateral, social collateral is involved.
Each group has its own president and secretary to coordinate all activities among their own group
and to communicate and coordinate with other groups. Eight groups are then organized at center
level, by which a bank officer deal with these all eight groups. This center of eight groups has its
own center chief and center group leader (Khan, Rehman,2007). According Sengupta, Aubuchon
(2008), first time, bank granted loan $100 and bank require to repayment of 10 percent amount, at
rate of per annum, weekly. This repayment ensures to user for loan security, and also encourages
them for savings. Along with five percent of loan deposited in group account for emergency and
social need. For example, in case of need of health care of any one member, in case of emergency,
this five percent deposit will be use.
In Grameen model, unique and innovative approach of group lending is used. As Sengupta,
Aubuchon (2008) described that group lending have many benefits. First, group usually organize in
members who are neighbor to each other, those can understand each other well and recognize their
needs. Second, if anyone of group member will not present in group meeting, leader or other
member can pay its installment. We can say that there is a kind of mutual understanding between all
members. Third, in south Asia generally, and in Bangladesh specially, there are social pressures
among members of society with social bindings with them. If one member of group will not pay
even one installment, social pressure will be levied from all eight groups on this member.
Ultimately she will try to pay installments. This leads to the reduction of risk.

3.3.2 Progressive lending-Banco Sol Model

Grameen model of microfinance emphasize on lending to villagers and keep loan lending on in
smaller amount. The other core concept of model is formation of groups and these groups are
eligible to take loan, no option of loan for individuals. Idea of progressive lending
(Agion&Morduch, 2005, pp.119) introduced to lend loan to individuals with group lending.
Amount of loan will increase after completion of every repayment schedule. But other
characteristics of Grameen model (Group lending) are included in this method, like targeting to
poor, women, group formation, and public payment. No doubt, progressive lending is an extension
of group lending (Grameen Model) but now many MFIs are adopting this approach. In this model
of “Progressive lending”, microlenders are flexible about collateral and lend loan to group with
individuals also. This method is very helpful in areas with low population densities or highly
diverse population where group forming is not so easy due to different ratio of safe and risky
borrowers. This model is adopted by Banco Sol in Bolivia. In Bolivia, there was different situation
when populist regime left government and there were high ratio of unemployment in urban areas.
To come to fulfill the need of time, Banco Sol started operations in microfinance with progressive
lending. Therefore we can say that microfinance approaches are evolved due to different political,
ideological and social conditions. According to Weiss Montgomery (2004, pp.3) “Microfinance in
Latin America developed under quite different conditions. In Bolivia, a collapsing populist regime
led to widespread unemployment. Banco Sol, a pioneering microfinance institution in the region,
developed to address the problem of urban unemployment and provide credit to the cash-strapped
informal sector. The notion of commercial profitability was embraced relatively early in this

3.4 Microfinance-Interest free (Islamic Microfinance)

Most of MFIs are providing micro lending on more than 20 percent interest even reaching 30
percent which is higher than commercial banking. Reason for these higher rates is of high
institutional cost, giving loan on door steps, small loan amount and higher number of customer
therefore increased expense to maintain all operations and risk factors. This high interest ratio put
pressure on loan borrower which can affect the overall success of business.
New and emerging approach is introducing interest free microfinance (Islamic Microfinance). As in
Islam, charging interest (Riba) on liquid cash is prohibited because by Islamic teachings, money is
not an asset for earning profit (Dhumale, Sapcanin, p.1).Islam emphasizes on social, ethical, moral
factors for distribution of wealth and guide towards social and economic justice. Islam rather than
interest, encourage profit because earning profit evolve productive activity and involve in profit and
risk sharing between lender and borrower (Dhumale, Sapcanin,p.1-2). Basic motive behind this
approach is more than profitability, repository of wealth but collective wisdom of development of
business, sharing profit and loss and collective struggle for business development. So the final gain
from this is social benefit rather than profit gain and maximization which is helpful to microfinance
and micro entrepreneurship. Microfinance –interest free can be handled in many ways but we will
discuss three famous methods which are Mudaraba, Musharaka and Murabahah (Segrado, 2005).
Mudaraba (Participation financing): Mudaraba mean transaction between financial institution
and borrower and for this option, both capital provider and entrepreneur have no pre decided
amount as an interest but will work on basis of profit sharing and both will share this. According to
Zaher,Kaber (Segrado,2005, p.11), ”Mudaraba is a trust based financing agreement whereby an
investor (Islamic bank) entrusts capital to an agent (Mudarib) for a project. Profits are based on a
pre-arranged and agreed on a ratio. This agreement is akin to the Western style limited partnership,
with one party contributing capital while the other runs the business and profit is distributed based
on a negotiated percentage of ownership. In case of a loss, the bank earns no return or negative
return on its investment and the agent receives no compensation for his (her) effort”.
Musharaka: This is same like as joint venture between two or more persons or institutions.
According to Segrado (2005), “Two parties provide capital for a project which both may manage.
Profits are shared in pre-agreed ratios but losses are borne in proportion to equity participation”. So
it will not be based on profit sharing business but it depends on decision making and management
capacity and role in business.
Murabahah: In this model, MFIs first buy items and then resell it to borrowers with adding some
reasonable profit/markup (Habib, 2005). After this, agreement will be establish to return amount to
lender. Installment will then make over, and duration of pay will be decided. Owner ship of good
will remain in name of MFI until all credit will be cleared. It is important to quote here that markup
or profit add on actual amount by MFIs is consider administrative cost, and it is demand of Islamic
practices that profit margin should be as much as minimized. Dhumale, Sapcanin (p.10) resemble
Murabahah as “The Murabahah contract is similar to trade finance in the context of working capital
loans and to leasing in the context of fixed capital loans.” Murabahah consider the suitable method
in IMFIs due to its clear and easy to understand methodology.
Qard-e-Hassan:The Prophet Muhammad (PBUH) says “the inmates of Paradise are of three types:
one who wields authority and is just and fair; one who is truthful and has been endowed with power
to do good deeds and the person who is merciful and kindhearted towards his relatives and to every
pious Muslim, and who does not stretch out of his hand in spite of having a large family to support.
[Sahih Muslim]” (Hossain, 2004). Teaching of Islam encourage to rich poor to help poor so that
poor can also benefit with social services and uplift their standards of life.
Qard Hassan’s principal is that lender give loan to borrowers with out any profit/extra amount or
interest and debtor is supposed to return back as soon or pre decided date but lender will not press to
return back as soon (Mirakhor,Iqbal, 2007). Qard Hassan’s working is same as conventional MFIs
but there is some differences like no interest will be charged and there will be no strict fine or
charges on default or delay of amount.
While expressing the rules regarding Qard Hassan, Hossain (2004) outlined as following:
• There should be proper contract between lender and borrowers in which all terms and
conditions will be written
• Date of payment must be specified
• Loan contract should written
• Getting two witnesses
• Charging membership or administrative fee.

3.5 Empowerment
Poverty effects not only on individual’s life but also on society as a whole. Poverty is one of the
main reasons in cause of less empowerment of poor especially in developing countries.
Empowerment is broad concept to define because many elements involve in it. These elements
influence by including political, social and power system in the country. Empowerment covers
many issues and when there is discussion on empowerment it includes many elements. According to
PREM,WB(2002) these elements are, self-strength, control, self-power, self reliance, own choice,
life of dignity, fighting for rights, independence, decision making, being free, capability , access to
basic human needs etc. Misra (p.3) describes empowerment as a power to the people and self
governance. He quoted “Empowerment builds self-reliance and strength in women, preparing them
towards gathering the ability to determine the choice of life. This adds to the command over
resources outwit insubordination and signify their social role”. Due to different social, political,
economical conditions, we can not define a one definition for empowerment. Here are two
definitions that address most of factor linked with empowerment. According to Batliwala
(Makombe,2006,p.52), empowerment mean “take control over material assets, intellectual
resources, and ideology. The material assets over which control can exercised may be physical ,
human , or financial, as land water, forests, people’s bodies and labour , money and access to
money. Intellectual resources include knowledge information, and ideas. Control over ideology
signifies the ability to generate, propagate, sustain, and institutionalize specific sets beliefs, values,
attitudes, and behavior-virtually determining how people perceive and function within a given
socio-economic and political environment”. While according to PREM,WB(2002,p.11),
“Empowerment is the expansion of assets and capabilities of poor people to participate in ,
negotiate with , influence, control, and hold accountable institutions that affect their lives.”
According to PREM,WB(2002), strategies for empowerment is taken at individual, government,
civil society and private sector level. Usually these efforts lead to empower people in context of
sharing of power, freedom of information, access to resources and health and education services.

These strategies normally share four types of elements: First, Access to information, its mean every
citizens including poor have direct access to information because information is power. Second,
Inclusion/participation, that’s mean there should be opportunities for poor that they can participate
in decision making and they should be included in all financial and political policies. Third is
accountability, that’s mean officials, public servants, private actors should be accountable not only
to some specific institutions but to their citizens for performance. Fourth and last one Local
organizational capacity, its mean that people can work together, organize themselves, mobilize and
utilize resources and solve problem at community level.

3.6 Entrepreneurship
Entrepreneurship is one of the most widely used term in business, management, economics and
other related fields. One of important thing is that entrepreneurship has different meaning for
different people, some use it in the meaning of innovation, some use for creativity, risk taking,
leadership, and profit maximization or in social context, and some consider it as start up of business,
new production methods and many other different meanings. Davidsson, (2004) describes it that
entrepreneurship is rich phenomenon which makes it a resourceful field. While defining
entrepreneurship, we consider some school of thoughts that have major role to define this field.
Entrepreneurship, under the flag of Schumpeter school of thought (Swedburg, 2000), is about
innovation in organizational process, thinking up new combination, entrepreneurial behavior and
motivation of entrepreneurs. While according to Gartner (Thornton,1999), entrepreneurship is about
creation of new organization or new startup, creating values and entrepreneur mean owner-manager.
In Krizner’s view (Swedburg, 2000), entrepreneurship is searching opportunities and exploiting
them so it reflects towards the alertness capability of entrepreneur towards profit opportunities.
Timmons (Bengtsson, Peterson, 2008) describe different component of entrepreneurship and named
it entrepreneurial process. Model emphasizes three entrepreneurial components, Opportunity,
Resource and the Team.
According to Timmons (Bengtsson, Peterson, 2008) in following fig (4), there is description about
each factor which describes best about entrepreneurship and role of entrepreneur is growth of firm:

Opportunity Resources
Business Plan

Ambiguity Fits and gaps Exogeneous

Team Leadership
Capital Market

Sustainability: For environment , community and society

Fig. 4 Timmons entrepreneurial process model (Source: Bengtsson, Peterson, 2008,p.6)

Opportunity: where there will be more imperfect market there will be more opportunities to
exploit. According to Timmons (2008, p.7), “The greater the rate of change, the discontinuities, and
the chaos, the greater is the opportunity…”. Entrepreneur will have more room to exploit
opportunities. So important job is to search opportunities and yield them. This is a core
characteristic of entrepreneur that he/she should be opportunistic.
Resources: Resources are not always first priority of entrepreneur, innovative business idea is at
top of his/her priority list. No doubt, new business always needs lot resources but if there will be no
business idea then this money is useless. According Schumpeter (Reisman, 2004), entrepreneur
have strength to stand up and resist if he/she feel any problem even in the form of resources. If
entrepreneur have problem to access financial resources from bank, he/she may have capabilities to
see alternative ways to access resources.
Team: Team in firm always stand firm with organizational objective. It is also core characteristic of
entrepreneur and important factor of entrepreneurship, that entrepreneur make up team and utilize
team strengths to achieve firm’s objective. This is team work, which works in uncertainty.

Entrepreneurship-Two distinct schools of thoughts

Two schools of thought about entrepreneurship are famous while defining entrepreneurship; these
are Schumpeter’s theory of entrepreneurship and Austrian theory of entrepreneurial discovery.

Schumpeter theory of Entrepreneur

Schumpeter’s theory of Entrepreneur is evolved while contributing knowledge in theory of
economic development by Joseph Schumpeter. According to Schumpeter (Swedburg, 2000),
innovation is that to combine materials and forces, which are under reach, with different method or
with new combination to produce a new innovative products. By this definition, it is important to
consider that Schumpeter emphasize innovation rather invention. According to Mondal (p.6),
“Schumpeter’s model works through the transformation of production function. A production
function is the technological relationship between inputs and out puts.” Further to elaborate
innovation and resulted products, in following there are five forms: (1) the introduction of new good
for users or new quality of good (2)the introduction of new method of production-handling
production system in new way (3) the opening of new market-where company do not entered before,
even existing or new market (4) the conquest of a new source of supply of raw material (5) the
carrying out of the new organization of any industry, like the creation of monopoly organization.
These all steps indicated a kind of innovation by combining sources, materials and function and
producing a new product or service.
Other major contribution of Schumpeter theory also discusses motivation of the entrepreneur. First,
it discusses about the desire and will of entrepreneur to establish an organization where
entrepreneur can work independently and enjoy power. Second, that he/she has will to become
successful in his/her business. And third is joy and satisfaction on reaching his/her goals (Swedburg,
According to Gartner, McDaniel (Mondal, p.5 ), that when we think about entrepreneurship, there
are many factors attached with it like economic, personal and sociological variables and their
combination. Personal characteristics also attached as entrepreneurial behavior, these characteristic
are included need of achievement, risk taking propensity, locus of control, beliefs about wealth and
material gain and business growth.

Theory of Entrepreneurial Discovery-Austrian perspective

Austrian Theory of Entrepreneurship (Swedburg, 2000) , entrepreneur anticipating market and need
of customers exactly and correctly, produce more cheaply than competitor and earn profit.
Entrepreneur makes it useful for customers and hence as it will be more useful, entrepreneur can
earn more. This idea is directly indicating to earning profit while anticipating market and customer
needs in advance. By this theory, it is showed that successful entrepreneur will be that who can earn
more profit.

Entrepreneurial discovery emerged in Austrian economics by evolving two elements. One, market
is act as entrepreneurially driven process and other is knowledge which can be increase by market
interaction (Kirzner, 1997). Austrian entrepreneurial discovery theory has three main concepts
which are entrepreneurial role, the role of discovery and rivalries competition. From discussion, we
can perceive that Austrian approach emphasize entrepreneurship with economic activity and market
Both theories have different and similar aspects on entrepreneurship. Different authors have
different approaches on entrepreneurship; this may be due to their research, the environment in
which they are working, the previous research and literature available. Innovation, risk taking and
creativity are almost essential part of both theories. Schumpeter’s theory mainly emphasize on
innovation, emphasizing to redefine and regroup resources to produce new product or service. And
innovation always has risk with itself. By producing new product, accessing new market, adopting
new production system, all lead to risk. In case of Austrian theory of Entrepreneurship, anticipating
market and customer need is somewhat need an innovative idea and it also lead to risk. So compete
this, creative mind, technique is needed. According to Boettke,Coyne ( p.5), “As compared to
Schumpeter’s characterization of the market process as creative destruction, Krizner emphasized
that markets tend continually …towards equilibrium, as consequence of continually-stimulated
entrepreneurial discoveries”. So Schumpeter emphasize on creative destruction while Austrian
approach argue towards market knowledge which priory unknown.

3.7 Micro-Entrepreneurship
Microfinance is emerging tool for economic development, poverty alleviation, empowering of low
income communities and contributing a new role in micro-entrepreneurship (Mondal, p.1-3). It has
gained a prominent role in developed and also developing countries. Most of research on micro
financing is developed on issue of poverty alleviation and empowering of poor but there is very less
shed light by researcher on Micro enterprise and Micro-entrepreneurship. Our studies will based on
this our initiative that how micro financing is contributing in entrepreneurship? Is there
entrepreneurship and entrepreneurial abilities and activities exist in owner and in business? If study
will reflect answer ‘yes’, then how micro financing is contributing to entrepreneurship? And if
answer will be ‘no’, then justify it.
According to Mondal (p.3), there are two types of microfinance borrowers; one is Micro borrower
and other Microentrepreneur. Micro borrower has mind like capitalist who is aim to earn profit
while doing business. So micro borrower get finances from MFIs (Micro Finance Institutions), after
paying back, again they will get finances but only motive is to generate profit but not any
entrepreneurial achievement. On the other hand, microentrepreneur financed their business and
brings innovation, creativity and doing a different from others.
In our work, we will see this aspect of microentrepreneur. For this, initial and essential is to develop
definition of micro entrepreneurship. For definition, we will work different theories of
entrepreneurship, examine different entrepreneurial abilities, different characteristics as

3.8 Social Entrepreneurship

Social Entrepreneurship concept is known in practice as which includes a wide range of activities
like individuals in enterprises devoted to making a difference; social purpose business ventures
devoted to adding for-profit motivations to the nonprofit sector; and nonprofit organizations that are
reinventing and making innovations as a change makers by drawing on lessons learned from the
business world (Peredo, McLean ,2006).

3.8.1 Definition of social entrepreneurship. Critical review between for-profit and non-for-
profit social entrepreneurship
Nowadays we can hear a lot of things about Social entrepreneurship concept and we define it in this
part of our thesis. We should first look at the concept of both sides “social” and “entrepreneurship”.
As stated in Oxford Advanced Learners Dictionary (Fifth edition, 1995) “Social” means concerning
the organization of and relations between people and communities. “Entrepreneur”- a person who
starts or organizes a commercial enterprise, esp. involving financial risk, it means this is risk taking
action. In Webster’s dictionary the concept “Social”- of or relating to human society, the interaction
of the individual and the group, or the welfare of human beings as members of society,
“Entrepreneurship”- French, from Old French, from entreprendre to undertake. “Anyone who
samples this array of material may be left wondering exactly what social entrepreneurship is. Is it
just the application of sound business practices to the operation of non-profit organizations as some
seem to suggest” (Reis, 1999), or is it a more radically different approach to the business of doing
good? It is said that ‘‘social entrepreneurship is emerging as an innovative approach for dealing
with complex social needs’’ (Johnson, 2000: 1), especially in the way of decreasing public funding.
What is it that makes this approach so promising? Before as part of answer to this question we
should first understand what the phenomenon is. Explainers, both scholarly and popular, and
advocates of every kind, understand it in different ways. The concept needs to be clarified just to
make those comments and that advocacy eligible (Peredo, McLean, 2006).
“One can ask fruitfully both what makes social entrepreneurship social, and what makes it
entrepreneurship. On both points, there is a variety of perspectives” (Peredo, McLean, 2006,pp.57).
Dees (1998,p.3) speaks for many when he declares, ‘‘Social entrepreneurs are one species in the
genus entrepreneur’’. At first we would like to describe the theories in entrepreneurship which
comes in our research as a broad activity. An entrepreneur is simply one who starts up and/or runs a
small business. Some dictionary definitions reflect this use. The Canadian Oxford Dictionary, for
instance, defines ‘‘entrepreneur’’ as ‘‘A person who starts or organizes a commercial enterprise,
especially one involving financial risk’’ (Barber, 1998, p. 467). We can say this definition as a very
simple one. Of course it is impossible to talk about entrepreneurship without Schumpeter who
contributed huge theory to this concept. He produced the first competent history of entrepreneurship
in economic theory and his approach to this topic has deeply influenced the history of economic
thought, and is still the dominant one. He described entrepreneurship mostly emphasizing on
innovation and entrepreneur is a person who innovates and make a change.(Swedberg,2000.,p.17)
Casson defines the entrepreneur as “someone who specializes in taking judgmental decisions about
the coordination of scarce resources”(Swedberg,2000). European Commission says:
“Entrepreneurship is first and foremost a mindset. It covers an individual’s motivation and capacity,
independently or within an organization, to identify an opportunity and pursue it in order to produce
new value and economic success. It takes creativity or innovation to enter and compete in an
existing market, to change or even to create a new market. To turn a business idea into success
requires the ability to blend creativity or innovation with sound management and to adapt a business
to optimize its development during all phases of its life cycle. This goes beyond daily management:
it concerns a business’ ambitions and strategy.” (European Commission 2003, p. 5)
Dees defines the entrepreneurial aspect of social entrepreneurship as including (1) creating social
value mission with the recognition pursuit of new opportunities, (2) engaged in innovation and
modification continuously, (3) goal forward action decided without taking into account of existing
resource limitations (Dees, J. G. (1998)stated in Peredo, McLean ,2006,pp.58) . And if we

summarize all of the theories entrepreneurship is risk taking, opportunity seeking, change making
and requires innovative activities.
And now let’s look close to the theories of social entrepreneurship which makes it social.
When we describe entrepreneurship it was broad definition if we talk about social entrepreneurship
it is actually narrow definition rather than entrepreneurship. Social entrepreneurs and their actions
are driven by social goals, it means in some way to increase in society “social value”, poverty
alleviation and wealth distribution.
Some scientists say that entrepreneurship must be non for profit activity since it is working for
people and aimed social activity not profit generation while others say that we can use social
entrepreneurship definition as enterprise who mixed both for profit and non for profit organizations.
Dees(1998,p.3) states ‘‘For social entrepreneurs, the social mission is explicit and central . . ..
Mission is the central as at the first place rather than wealth creation. He thoughts that Wealth is just
a means an end path for mission [emphasis added]’’. he means that there is no place for financial
aims in undertaken aim. Anderson and Dees (2002), for instance, ask the question whether earned
income generation, resulting from some form of exchange of a product or service, is essential to
social entrepreneurship. Their answer is emphatic: ‘‘No! It is not. Social entrepreneurship is about
finding new and better ways to create and sustain social value’’ (Peredo, McLean ,2006,pp.59). On
this understanding, if people do help to poor people for example, just give food, shelter and others
they should not expect any returns from them or just help to endeavors with profits which they
Other commentators described this term in permissive way. The Northland Institute (2001), for
instance—a body founded in 1996 ‘‘to improve the effectiveness of community development
organizations’’—represents a constituency which links social entrepreneurship with ‘‘social
enterprise,’’ a term it defines as ‘‘the use of earned income strategies by nonprofit organizations.’’
The Institute is one of many participants in the field who cite the ‘‘double bottom line . . . the art of
simultaneously pursuing financial and social returns on investment.’’ (Peredo, McLean ,2006,pp.59)
On this view, social entrepreneurship necessarily involves ‘‘enterprise,’’ in the sense of some form
of income-generating venture; bent, however, not on profit but on social benefits. NFPs taking this
route are often described as ‘‘hybrids’’ (e.g. Davis, 1997) in recognition of the way that they
combine non-profit with for-profit organizational features. A notable example of this form of
enterprise would be the Grameen Bank in Bangladesh (Grameen Communications, 1998). Fowler
(2000, p.645) has used another definition to this type of social entrepreneurship as usefully labeled
‘‘integrated social entrepreneurship’’ which help to people to create their businesses and use profits
again to generate social value. Pomerantz (2003) describes social entrepreneurship as, “Social
entrepreneurship can be defined as the development of innovative, mission-supporting, earned
income, job creating or licensing, ventures undertaken by individual social entrepreneurs, nonprofit
organizations, or nonprofits in association with for profits.”(Peredo, McLean,2006, p.60).
So far, there is a shared assumption which divided into two groups that social entrepreneurship is a
NFP concept, and a range of opinion as to whether or to what extent they might or must be involved
in some form of revenue-generating exchange. However, all publications both scholarly and non
scholarly in 15 years period when they talk about “Social Entrepreneurship” concept almost fully
83% referred to examples of not for profit organizations(Peredo, McLean ,2006).

While describing Social entrepreneurship, Peter Brinherckoff stated Social Entrepreneurs are very
important to every non-profit organization to lead them to take risk to set more objectives in a more
focused manner. Also he related social entrepreneurship with only non-profit organizations, and
argued that it is impossible not to use for profit business techniques and tactics in even not for profit
mission. He assures that many people’s words about not for profit organizations are already
outdated that their aim is for public service and not for money, and he strongly supports that it is
time to change, if social entrepreneurs are taking the risk it means they use business techniques and
surely the main aim is to achieve business objectives. He believes business techniques make not for
profit organizations mission go further and faster successfully (Brinherckoff, 2000). Finally, he
describes social entrepreneurship as Stewards (Brinherckoff, 2000), who try new things, serve
people in new ways and try to have their organizations be fonts of excellence. He states 6
characteristics of Social entrepreneurs:
ƒ looking for new ways to serve society and add value to existing services
ƒ willing to take reasonable risk on behalf of stakeholders
ƒ understand the difference between needs and wants
ƒ understand all resource allocations are stewardship investments
ƒ consider the social and financial return of each of these investments
ƒ always keep mission first, but know without money, there is no mission output
There are a lot of aims under social entrepreneurship. Some companies try to attract the media to be
successful in a competitive business environment by showing their social responsibility. For
example, Avon Cosmetics allies itself with the cause of raising breast cancer awareness. ConAgra
Foods, one of the U.S.’s largest distributors of processed and packaged foods, joins the fight against
child hunger by sponsoring afterschool cafe´s. Cause-branding is recommended on the grounds that
while it provides needed support for worthwhile social projects, it also benefits the profitability of
the business, partly by encouraging loyalty among customers and employees. Companies which
‘‘demonstrate a sense of social responsibility,’’ it is said, ‘‘stand out in a world of increasingly
undifferentiated services’’ (Cone et al., 2003,p. 95). After this there is the question “Can we say this
Social entrepreneurship?” Answering to this question The Harvard Business School stated that
social entrepreneurship should be taken to include undertakings where social goals are added to the
firm’s objectives, even where they may not rank first in the firm’s priorities and may be taken on at
least partly for instrumental reasons. After all this discussion we can make a range of social
entrepreneurial issues in which social value is the only mission of their aims.
Still the line between for-profit and not-for-profit enterprises is hard to sustain as a significant
boundary on social entrepreneurship. As one reviewer of the literature puts it, ‘‘socially
entrepreneurial activities blur the traditional boundaries between the public, private and non-profit
sector, and emphasize hybrid models of for-profit and non-profit activities’’ (Johnson, 2000: 1).
If we generalize the definition of Social Entrepreneurship concept: an activity that taken by
entrepreneurs who finds particular social problem and specific solutions for these problems in
society; determination of the social impact, the business model and the sustainability of the
organization; and creating a social mission-oriented for-profit or a business-oriented nonprofit entity.

3.8.2 Models for social entrepreneurship

Nowadays it is common to see certain companies in the private, public and independent third
sectors as examples of social entrepreneurships. Mostly we can see that while private sector social
entrepreneurs engaged in social activities and ‘‘more entrepreneurial approaches in the not-for-
profit sector’’ (Canadian Centre for Social Entrepreneurship, 2001), and we notice the same framed
initiatives of social entrepreneurship in public sector as well. In this part we consider organizational
models of entrepreneurship, we apply to private, public and non for profit sectors and also we
mention on hybrid or bridge forms which is usual nowadays (Roper , Cheney ,2005).

Private social entrepreneurship

As recent publications and literatures suggested that working as private social entrepreneur gives
three advantages in terms of orienting to planning, profit and innovation. Socially oriented purpose
business ventures can draw upon a wealth of experience in terms of market analysis and the conduct
of feasibility studies (Campbell, 1998). Perhaps the single most important activity for the new
business start-up, or the business that is charting a new course into the social seas, is a systematic
process for generating and screening ideas (Thalhuber, as cited in Campbell, 1998).
Generally speaking, then, self-styled socially entrepreneurial enterprises assume greater latitude in
adopting and adapting the popular business trends of the day. As we will see in the discussion of
leadership that follows, much of this freedom or autonomy is held by value-driven, charismatic
leaders (Roper, Cheney ,2005).

Social Entrepreneurship in the not-for-profit sector

Not-for-profit sector is not new for social entrepreneurship; social entrepreneurship has been going
with in not for profit sector in a very real sense. Many social-movement organizations, social
advocacy groups, and community initiatives have been started and sustained all over the world
through the passion, insight, and creative work of people that fit our contemporary application of
the idea of the entrepreneur(Roper , Cheney ,2005).
To be sure, part of the entrepreneurial trend in many non-profits has been increased competition for
funding resources from private foundations and government agencies ( Leonardis and Mauri, 1992)
Actually, not for profit organizations started their actions to provide educational and specific health
profit making activities in urban environment and functioned as small business incubators as
Wallace(1999) described. While the specific governance, fiduciary, and organizational structures of
such enterprises vary greatly, most of these ventures involve at least these characteristics: an
orientation toward the regeneration or expansion of economic activity, collective advancement of
the public good rather than exclusionary support for private interests, community ownership or
control, and participative democratic structures (Pearce, 1994).
Non-profits that assume an entrepreneurial posture are less hesitant to implement concepts and
practices from marketing, strategic planning, and systems for the analysis and control of costs. In
other words, a certain blurring of sector boundaries is taken for granted, often as necessary for
survival(Roper , Cheney ,2005).

Social entrepreneurship in Public sector

Privatization has power to divide ownership sector to two parts as private and public before that we
had only one owner public sector which was usual before 1950s. After privatization public sector
remains less flexible and less freedom than that of private sector. As Ostrom (1964) stated that
public organizations have a more difficult time adapting to changing circumstances and innovating
owing to constitutional, executive, legislative considerations, as well as to sheer habit. In short, the
private sector allows for greater freedom and experimentation.
As Shockley et al. (2002) stated, in the 1990s, the theories and models of public-sector
entrepreneurship overwhelmingly stressed rational economic calculation and especially direct
responsiveness to market data. But, Kirzner (1999) argued, this mechanical idea of entrepreneurship
as applied to public sector overlooks the fact that true entrepreneurship is something more and
beyond mere calculated responses to the environment of decision; it entails an ‘‘alertness to hitherto
unnoticed opportunities’’ (p. 39)
In public and third sector the stages of social entrepreneurship is certainly different than other
sectors. To reach financial wells as well much greater, but policy and regulations constrained by
only presidents of the companies or by government. In this way, third and independent sectors will

arise and make partnership with governmental sectors to create combination of organizational
interests in a project focused way(Roper , Cheney ,2005).

3.8.3 Services for the poor. A new phenomenon: Social entrepreneurship (SE). Growing number
of initiatives
As we know human needs are main reason to company’s decisions about which products or services
to produce. In spite of unlimited volume of human needs, companies still struggling to survey to
find new markets and value propositions, and for large corporations the challenge for growth has
become as important aim. But even if there are a lot of companies struggling and producing
products and services and making a lot of money but still in societies especially in non-
industrialized countries basic needs of millions of people remain unmet, mainly because these
customers are willing to satisfy their needs but unable to pay for products and services( Seelos
Mair ,2005).
The World Bank (2003) says that services to satisfy basic human needs, especially those that
contribute to health and education, are not serving poor people in terms of access, quality, and
affordability. The main reason for this failure is that public spending, as a matter of fact, is not
reaching poor people. But if still they reach, they are in poor quality and inefficiently.
A growing number of initiatives all over the globe seem to be defying the obstacles that have
prevented businesses from providing services to the poor. Collectively, those initiatives constitute a
phenomenon that has been dubbed “Social entrepreneurship”. Employing novel types of resources
and combining them in new ways, SE is a rich field for the discovery of inspired models of value
creation( Seelos Mair ,2005).
As we defined the term of “social entrepreneurship”, it is used to refer to the fast growing number
of organizations that serving poor by meeting their basic needs that established existing markets and
institutions have failed to satisfy( Seelos Mair ,2005).
Some examples of Initiatives which clearly reflects social Entrepreneurship as a huge spots in this
type of business are “The Institute for One World Health” (USA), “Sakem”(Egypt), “Grameen
“The Institute for OneWorld Health” (USA) founded by Victoria Hale, a research scientist with
Genentech and former reviewer of New Drug Applications for the Food and Drug Administration,
was aware of the economic and logistical barriers that prevented pharmaceutical companies from
developing drugs for Third World countries. To overcome these barriers, she founded One World
Health as the first US non-profit pharmaceutical company. One World Health has adopted an
entrepreneurial business model to deliver medicines to those most in need in developing countries.
Large philanthropic organizations and governments provide much of the initial funding. Being a
non-profit company is an enabling structure for social value creation, as One World Health can
access capital that business entrepreneurs usually cannot.
“Sakem”(Egypt) founded by Ibrahim Abouleish in 1977 on a piece of desert land north of Cairo,
which was very small company indeed at the moment a multi-business firm that not only creates
economic, social, and cultural value, but also has a significant influence to Egyptian society. If we
see its contribution to sustainable development of society, its businesses fund spent to build
institutions such as schools, an adult education center, and a medical center. These institutions cater
directly to basic human needs; furthermore, Sekem fills an institutional void in Egypt by providing
structures that people trust and that help them to escape the poverty trap and gain control over their
lives. On the environmental side, it has pioneered biodynamic agriculture in Egypt. It has deployed
a new system of plant protection for cotton, which has led to a ban on crop dusting throughout
Egypt. By 2000, pesticide use in Egyptian cotton fields had fallen by more than 90%. In 2003,
Ibrahim Abouleish received the Right Livelihood Award in recognition of his achievements in
integrating commercial success with social and cultural development. Founded in 1980, the Right
Livelihood Awards are presented annually in the Swedish Parliament and are often referred to as the
“Alternative Nobel Prizes.” Their purpose is to strengthen positive social forces, and to honor and
support those offering practical and exemplary answers to the most urgent challenges facing the
world today.
Our third initiative is Muhammad Yunus, an economics professor who founded the Grameen Bank
in 1976 to supply credit to those who would not qualify as customers of established banks. Today,
Grameen operates 1191 branches, serving over 3 million poor people in 43,459 villages in
Bangladesh. Grameen Bank grants unsecured loans to the poor in rural Bangladesh.
It differs from other lending institutions on three counts. First, the loans can be repaid, and on time.
Second, only the poorest villagers, the landless, are eligible. Third, the bank makes efforts to lend
primarily to women, who are not only economically but also socially impoverished ( Seelos
Mair ,2005).
While many researchers try to define social entrepreneurship theories and emphasizing how to find
out solutions of sustainable development how to satisfy unmet human needs in developing countries
which unable to pay, our examples in practice definitely show that inspired entrepreneurs have
shown us new paths and solutions, basing their designs on local needs rather than on the centralized
assumptions of large institutions about what needs to be done.

3.8.4 Sustainable Development and Social Entrepreneurship

Nowadays, while many companies are aiming to get as much profit as possible and trying to add
some value to economic and social goals, but still there are a lot of social, economic, environment
and health problems in the world. And with sustainable development goals we should reduce
poverty and keep balance in society. And the main gun to reach sustainable development goals as
discussed by many scientists is “Social Entrepreneurship” which is not many works done yet but we
can already see some perspectives that already started to add their value to sustainable development.
When we describe the concept of Sustainable development we apply to Brundtland’s (1987)
definition who described it “Development that meets the needs of the present without compromising
the ability of future generations to meet their own needs.”If we scrutinize this definition carefully,
we can see a lot of value inside it such as human basic needs, future generation’s needs and
definitely to make changes by changing norms and behavior to create opportunities ( Seelos
Mair ,2005).
To realize this definition, the United Nations defined a set of Millennium Development Goals
(MDGs), based on a resolution adopted by the General Assembly in September 2000. These MDGs
comprise eight specific, quantifiable and monitor able goals (with 18 targets and 48 specific
indicators) for development and poverty reduction by 2015. These Goals include human rights,
health, education, and environmental issues. Multinationals companies as the efficiencies of
markets, combined with the resources and managerial expertise, are considered crucial success
factors in achieving these goals. As Margolis and Walsh (2003) emphasized, “Manifest human
misery and undeniable corporate ingenuity should remind us that our central challenge may lie in
blending the two.” Former United Nations Secretary- General Kofi Annan, in his address to the
World Economic Forum on January 31, 1999, called on global business leaders to embrace a set of
shared values and principles in the areas of human rights, labor standards, and environmental
practices. Kell and Levin (2002) describe the formation of a Global Compact network consisting of
several hundred companies, dozens of NGOs, major international labor federations, and several UN
agencies to collaborate in creating a more stable, equitable, and inclusive global market by making
shared values and principles an integral part of business activity everywhere. Likewise, the
European Commission (2002) has called for more direct corporate social responsibility (CSR) as a
business contribution to sustainable development. Despite these welcome commitments, the United
Nations Development Program Human Development Report (2003) provides evidence that, for
many people on this planet, life remains grim, and hope for improving their situation is frail( Seelos
Mair ,2005).
Social entrepreneurship combines the resourcefulness of traditional entrepreneurship with a mission
to change society( Seelos Mair ,2005). The complexity, scale, and scope of the world’s
environmental and social problems and challenges seem overwhelming, tempting us to resign
ourselves and doubt the capabilities of our institutions to improve things. However, inspired
entrepreneurs have shown us new paths and solutions by making changes and creating new models
to serve poor needs and basing their designs on local needs rather than on the centralized
assumptions of large institutions about what needs to be done.
First of all, there is no such thing as non-social entrepreneurship; in fact, Reynolds, Bygrave, Autio,
Cox, and Hay (2002) stated that in developed and even developing countries majority job places are
created by social entrepreneurs—certainly as important social function. So Social Entrepreneurship
is like business entrepreneurship, they find outs and acts upon what others miss such as
opportunities to improve systems with new models, create solutions, and of course invention of new
approaches. Venkataraman (1997), who states about Social entrepreneurship, understands that
social wealth creation is a product of economic value which done by entrepreneurs. In Social
Entrepreneurship he continues, social value creations stands as the first and primary aims of the
objective, while economic value functions only to reach sustainability and self-sufficiency( Seelos
Mair ,2005).

3.9 Conceptual Framework

After developing theoretical framework, it is important to discuss how we will integrate and
coordinate theories for our research work according to our research question. Our work is covering
two main topic; entrepreneurship and microfinance with discussing three factors; poverty reduction,
empowerment of poor and sustainable development. We will evaluate these theories with empirical
data that how entrepreneurship and microfinance can work as a combined tool for empowerment of
poor, poverty reduction and sustainable development in society.
In our work, we are going to investigate entrepreneurship on micro enterprise level. Most of the
studies emphasize on SMEs and LSE while discussing entrepreneurship but there is small amount
of literature available on micro entrepreneurship. Micro entrepreneurship is hard to find on micro
enterprise level because poor normally have no room for doing new experiences due financial threat
and they are not educated and trained. As entrepreneurship is not available in every SME or LSE ,
in our opinion, this is same in microenterprise. In research work, we study two strand of
entrepreneurship; Social Entrepreneurship and Micro Entrepreneurship. The other major issue in
our research work is microfinance. Microfinance is a kind a special financial service by which poor
can get finances for their business. Social entrepreneur work in neglected segment of society and
today most of the social entrepreneur are working for empowerment of poor. The other major effect
of social entrepreneurship is distribution of wealth to poor segment of society. As fig(5), by
combining microfinance with entrepreneurship(social entrepreneurship and micro entrepreneurship)
can stimulate the progress poverty reduction and empowerment of people.


Micro Entrepreneurship
Poverty reduction,
Empowerment and
Sustainable Development

Wealth Distribution


Fig. 5: A basic conceptual framework for doing our research work

Fig (6) is showing a detailed structure of our research work. Starting with microfinance, Grameen
model is most widely used lending method in microfinance and most MFIs adopted it. But this is
not only a one model, with this, Progressive lending- Banco Sol Model, by which individual loans
can be graneted, is also in practice. Islamic Microfinance adopted characteristics of both model, but
eliminate interest from loan. To understand microfinance myth, methodology, characteristics and its
uses, there is need of depth study of different model of microfinance. But mainly our study is
emphasizing that microfinance is not only financial services but it is a complete development tool
that include social services and intermediation with financial intermediation. Therefore
microfinance is not only reducing poverty but also putting impact on poor’s life by increasing their
life standards by providing social services. While Social entrepreneurship is effecting on poor by
providing them such opportunities where they can utilize their strengths and make opportunities
fruitful. In our study, we examine the role of social entrepreneur in wealth distribution and
sustainable development in society.
Entrepreneurship theories mainly examined in SME sector and large scale organization. In our
study it is very interesting to examine Schumpeter theory of innovation and Austrian theory of
Entrepreneurial discovery while taking different cases of micro enterprise. By entrepreneurial
behavior, implementing innovative ideas and exploiting profit opportunities, poverty reduce with
more speed and even micro entrepreneurs can get more profit by bringing innovation in their
production system.
By considering microfinance a development tool, and exploiting opportunities through
entrepreneurial ideas, can become a successful and speedy tool for alleviating poverty and
empowering poor.

Micro Entrepreneurship Microfinance

Schumpeter theory of Grameen Model-Traditional

Innovation Microfinance lending method
A combined Tool


Islamic Microfinance-
Increase in Akhuwat Model
Schumpeter theory of
credit pool

Social Entrepreneurship

Lead to
Cause Act as
Wealth Distribution
and Social changes

Innovative, MF as a Development
productive and tool
profitable production Poverty Reduction (Social
system Intermediation and
Social Services)

Empowerment of Poor
Effe on
ct on

Sustainable Development

Fig. 6: A detailed conceptual framework for doing our research work

4. Pakistan, Microfinance, Entrepreneurship –Empirical findings

In this section, we present empirical data collected through conducting interviews from borrowers,
Akhuwat’s administration and Islamic banking experts. Empirical data is including facts and
figures about poverty, unemployment, economy and microfinance. Furthermore, there is detail
information presented about Akhuwat itself and successful stories of different entrepreneurs-
borrowers of Akhuwat.

4.1. Pakistan- Some basic statistics

Pakistan became independent in August 14, 1947 after a long political struggle against British
regime. Pakistan is located in very important strategic location in South Asia, share eastern border
with India, north-eastern border with China, while south-west border with Iran and Afghanistan is at
western and northern edge. Country has total area 796,095 sq km.
Administratively, country is divided in four provinces, Sindh, Punjab, Balochistan and NWFP, with
tribal area (Federal Administrative Tribal Area-FATA), Azad Jammu and Kashmir and Federal
Territory, Islamabad. Country have total 153.96 inhabitant contributing 2.5 percent of world
population and 2nd largest country by population by population with PGR 1.8 percent (SBP Annual
report). Sixty five percent of total population is living rural areas while 35% in urban areas.
(Pakistan-“Some Basic Facts”-2008)

Education figures are not encouraging in Pakistan. Now the country’s literacy rate is 54 percent
which is still behind from other neighboring countries like Indian with 61 percent and Sri Lanka 90
percent. Currently, there are 0.23 million educational institutions in the country where 33.38 million
students are enrolled and 1.35 million teaching staff are serving. While among these institutions,
0.08 million institutions are working in private sector where 0.632 million teaching staff are
employed. Government is spending 1.84 % of total GDP on education (SBP-a, 2007).

Health sector in Pakistan is progressing from last few years in term of per capita health spending,
life expectancy, infant and maternal mortality rates, provision of immunization to children, the
provision of human and physical health infrastructure. Life expectancy is low in Pakistan that is
63.2 years in male and 63.6 in female, from other regional countries like 71.7 in male in Sri Lanka
70.2 in China. This low average in life expectancy in Pakistan is due to poverty, low health
spending, lack of infrastructure and lack of awareness. Pakistan is using US$ 18 per capita for
health which is very less than that of recommended amount of US$ 34 set by WHO and health get
portion of GDP only 0.51 percent (SBP-a, 2007).

Poverty is a one of major problem that is facing by country. But due to increase economic activities
and governmental policies, there is some good figures came about poverty and poverty reduction. In
Pakistan, people living under poverty line are 24 % which was 34 % in 2000-01. Poverty ratio is
almost double in rural areas as compared to urban. For example, in 2006, poverty ratio was 14.96 %
while in rural areas, it is 28 % (SBP-a, 2007). Table(1) shows that extremely poor in country is 1
percent, ultra poor contributing this figure 6.5 percent while poor is 16.4% that sum up to 24

Table 1: Comparative Poverty Profile (% of population)-(source: PRSP,2006,p.8)

Poor/non-poor Categories 2000-01 2004-05

Extremely Poor 1.1 1.0 Poor categories
where there is more
Ultra Poor 10.8 6.5 need of
Poor 22.5 16.4 microfinance
Vulnerable 22.5 20.5
Quasi Non-Poor 30.1 35.0
Non-Poor 13.0 20.5
Total 100.0 100.0

In Pakistan, there is 50.5 million active labor and 46.9 million are employed. In urban areas, people
are more unemployed than rural areas especially women which are 15% are unemployed. While
increasing in labor force, that was 24.78 million in 1981, due to economic growth, many
employment opportunities has been created but still there is a big gap between unemployment and
employment ratio(SBP-a, 2007).

Economy of Pakistan
Pakistan is mainly agriculture country and textile has major portion of country’s export. Pakistan’s
economy is accelerated with fast growing speed since last four years due to heavy investments in
telecom sector, large scale manufacturing industry, automobile, real estate and banking industry.
For fiscal year 2007, GDP growth was 7.0 percent and it is expected for FY 08 also, although there
are problems in law and order situation and political instability. Besides favorable condition for
economic growth and increase in GDP with declination in external debt, still there are problems
facing by economy that are lower ratio of tax to overall contribution to GDP, high inflation rate and
increase in oil prices. Due to sudden increase in food inflation, poverty is converted in term of
transitional poor to chronic poor. According to SBP, for consistent progress in economy, there is
need to provide opportunities and facilities both agri and industry sector. For this purpose, there is
need to execute such financial policies where farmer, especially, can get finances for their crops
that , in result, will lead to more productive activities. Let look some interesting figure about
country economy. GDP growth from FY 03 to 2007 is increasing mode and crossing 7.0 percent.

4.2 Microfinance market in Pakistan

Microfinance practices are not so new in Pakistan but limited numbers of MFIs are working in
Pakistan and there is comparatively limited outreach with compared poverty ratio in country. We
found few institutions working in agri sector in 60s. Agricultural Development Bank of Pakistan
(ADBP) which is now working as Zarai Taraqiati Bank of Pakistan (ZTBL) is one them. Even
ADBP was financing smaller farmer but still, collateral was taken to lend loan, therefore it was not
a pure microfinance. In 80s, there was a prominent development in establishing of MFIs when Agha
Khan Rural Support Program (AKRSP) started their operations in northern part of country, in three
sectors those were community development through community based organizations, infrastructure
development, and resource mobilization through savings and credit (PMN,2002). These all
programs are in operation today also. After initiating of these programs, many rural support
uninitiated by different provincial governments by name of Sarhad Rural Support Program (SRSP),
National Rural Support Program (NRSP), and Punjab Rural Support Program(PRSP). Rural Support
Program is mainly based on microfinance methodology (SBP-d, 2007). While in urban areas Orangi

Pilot Project was working in poor segment in cities. In 90’s, NGOs like Kashf Foundation, Daman,
and Taraqee had started their operations in microfinance sector, based on both rural and urban areas.
With major initiatives of NGOs, outreach is increasing to areas having chronic poverty. In
Musharaf’s rule, government have close look on microfinance and empowerment of poor, therefore
it came up with the strategy of initiating of microfinance ordinance 2001, establishing First
Microfinance Bank and Khushhali Bank (Rehman,2007).
Through microfinance policy implemented by ordinance, MFIs can be established in regulated
(Deposit-taking) and non-regulated (Non-Deposit-taking) institutions. Estimated clients, according
to SBP-d(2007), is between 25-30 million and due to high inflation rate , increase in oil prices and
worldwide trend of increasing in commodity prices, there is chances of increase in clientage.
Another different positive signs in development of microfinance sector are noted those are;
provision of an enabling policy environment, institutional development of existing MFIs and
evolving of new MFIs with sound basis, supportive infrastructure , encouraging government
policies, use of technology, human resource development and management, and most important is
enhancement in outreach of MFIs.

4.3 Practices of Microfinance in Pakistan

In Pakistan, different practices are being used in microfinance. Three types are famous and mostly
Community Based Organization (COB)
These organizations are established for execution of infrastructure development activities and
resource mobilization through savings and credit. COB’s strategy is initiated by different RSPs and
widely in used by Agha Khan Rural Support Program. Now most of rural support programs are
integrating microfinance by cobs with other community development activities. NRSP have their
operation at national level and approach to almost every part of the country (PMN,2002).
Solidarity Group Model
Most of NGO MFIs are following group solidarity model that is also known as Grameen model.
MFBs and MFI like KASHF foundation are using this model. It is a fastest growing model as most
of MFIs are adopting it because of its wide practices round the world (BWTP, p.3)
Individual or /and family based
Some MFIs, and MFBs, with Grameen model, are lending loan to individual and /or ‘family based’.
In the ‘family based’ process, loan is given to a family as a whole and there will be two are three
guarantors. In this type of loan, social collateral is used as guarantee.

4.4 Islamic Banking Practice in Pakistan

Pakistan freedom movement was based on slogan of a “two nation theory (Separate country for
Muslims)” and major slogan was a state with Islamic system and practices. Founder of Pakistan,
Muhammad Ali Jinnah, emphasized the significance of Islamic finance industry while addressing at
inauguration of the State Bank of Pakistan, said: “I shall watch with keenness the work of your
organization in evolving banking practices compatible with Islamic Ideas of social and economic
life. We must work our destiny in our own way and present to the world and economic system
based on true Islamic concept of equality of manhood and social justice.” It was a clear guideline
set by the founder for financial services but unfortunately, in world as a whole, there were not so
many practices of Islamic banking. Therefore till 1973, government did not take any major step for
Islamic Banking. In 1973’s constitution, a clause was introduced to adopt Islamic financial practices
and eliminate interest. In 1979, initial step was taken towards Islamic finance by starting operation
of NIT (National Investment Trust) and ICP (Investment Corporation of Pakistan) by interest free
operations and investments. The major step was taken in 1984 that was elimination of Riba (Interest)
from banking system and in January 1, 1985 all financing to Federal and Provincial Governments,
public sector corporations and public or private joint stock companies was directed to be only
through interest-free modes
Islamic banking is regulated and monitored by State Bank of Pakistan that is responsible to all
legalities and setting policy framework. Pakistan constitution directed to state that, in country there
will be banking system according to Islamic teachings and bank provide financial services that must
be interest free. But due to less practice of Islamic banking throughout the world, in Pakistan also, it
seems that in 90s, government started of taking steps for Islamic banking.
For this purpose SBP adopted three-pronged strategy for promotion of Islamic Banking in Pakistan.
1. Establishment of full fledged Islamic banks in private sector
2. Islamic banking subsidiaries
3. Stand alone Islamic banking branches of existing commercial banks
As per information provided by SBP, at the end of year 2007, six full fledged licensed Islamic
banks have their operation throughout the country with 185 branches while SBP gave license to 12
commercial banks for establishing stand alone Islamic branches. In Islamic banking, there is high
growth rate and now sharing 3.8% of total Pakistan banking industry and 3.6% of total deposits in
banking industry. Islamic banking industry have PKR 178 billion (US$2966 million) worth assets
and deposit of PKR 124 billion at the end of September 07 as compared to PKR 159 billion and
PKR 108 billion respectively at the end of June 07.
Many Islamic finance services are in use in Islamic banking industry including Murabaha, Ijara,
Musharaka, Mudaraba, Dimin. Musharaka, Salam, Istisna, Qarz/Qard-e-Hasna.
Murabaha Financing is contributing 44.91% of total financing on September 2007 as it was 40.9%
on June 2007. Second most widely used mode of finance is Ijara which is contributing 28.8% of
total financing. Diminishing Musharakah has increased by 47% from June 2007 term, and
contribute 26.1% of total financing. (See appendix B&C)

4.5 SBP and Islamic Microfinance

For microfinance, MFIs and for establishing MFBs, SBP has formulated guidelines and give
outlines for their operations. SBP also describes Islamic microfinance products. Guidelines are
aimed to broaden the availability of microfinance to poor at large scale and at macro level. SBP has
initiated of establishing of Islamic Microfinance division to regularize and encourage Islamic
microfinance in country. According to SBP, Islamic microfinance services and products can be
offered by different types of financial institutions which are listed as:
1. Full-fledged Islamic Microfinance Banks(IMFBs)
2. Islamic Microfinance Services by Full-fledged Islamic Banks
3. Islamic Microfinance Services by Conventional Banks
4. Islamic Microfinance Services by Conventional Microfinance Banks (MFBs)
(Information is based on Islamic Banking Bulletin by SBP-e,2007)

4.6 Entrepreneurship in Pakistan

After independence of Pakistan, and by intervention of military, a hidden cooperation established
between military and bureaucracy and they intervened all policies of the country. Policies
developed during this era were mainly under influence by this approach and decided to run
economy not by public-private partnership but with shadow of only public sector. Due to rent
seeking activities, direct corruption was observed by bureaucracy, state owned enterprise, licensed
based business and make economy with less entrepreneurial approach. According to
Haque(2007,p.8), “Rather than entrepreneurship, policy planned for investors and investments

became the norm. Incentives were offered to attract investment. Such incentives included licensed
monopolies in protected markets, cheap land and credit and subsidized inputs. ”
Entrepreneurship’s meaning was misinterpreted by bureaucracy, economic policy makers and
government itself and did not give a proper place in economic policies of country. Government and
economic experts mislead entrepreneurship and consider entrepreneurship as a part of big industrial
activities rather to its genuine meaning and missed entrepreneurship at micro, small and medium
Policies for Large Scale Industry
As it has been discussed that government misleads the meaning of enterprise, which is considered
as large industry, according to Haque(2007), different policy measure such as tariff protection,
import licensing schemes and control on imports has been taken rather productivity or encourage
industrialization for growth. This policy leaded to elite and rent seekers in large industry rather than
Neglect of Micro and SME sector
Normally, for people, industrialization means large scale industry and even at government level,
most of policies are only favoring to large scale organizations. But from the beginning, small scale
firms dominant Pakistan industry, and even business at micro level are contributing a successful
role in Pakistan economy. According to Haque (2007,p.12), “Today almost 40 percent of business
takes place in the informal sector and still as compared to the large scale industry, the small scale
enterprise and industry continues to face unfavorable policies. ……...The small scale and the
informal sector may be mush more dynamic and productive than what government figures have
continued to show till today. It is also important to note that the small scale sector is the breeding
ground for innovation but continues to attract little research.”

4.7 Borrowers of Akhuwat – Stories of Micro enterprises

We conducted interviews from nine borrowers to study entrepreneurship and entrepreneurial
behavior among microfinance borrowers. These borrowers got loan from Akhuwat either for
starting or for continuation of their businesses. Among these 9 borrowers, two are females while
remaining are males. We are surprised that most of them are doing business with experiencing few
new things in their production process.
In following we are presenting two successful stories of micro enterprise from nine interviewees. In
analysis section, we will analyze of these businesses and examine that weather entrepreneurship
exist on micro enterprise level or not.

Gulzar Ahmad-Madina Traders

Gulzar Ahmad is 40 years old, doing business with name of Madina Traders, producing plastic clips
by modeling machines. These clips are used in different machines and equipments and different
industries are the buyers of these clips. Before starting of this business, Mr. Ahmad was working as
an employee in a company where he was getting PKR 3500 (US$ 60) per month, doing work 6 days
per week and 8 hours per day. He has 6 dependents, two sisters and brothers, wife, and 3 kids. With
amount of PKR 3500, it was very difficult to maintain life only with basic human needs. According
to him, he had been thinking that he should start his own business even a smaller one otherwise it
would become totally difficult to spend life. On a suggestion from his friend, he contacted Akhuwat
and applied for loan 5 years ago. In a month, PKR 10,000 loan was granted and he started his
business. After a few months, he reconsiders his business strategy and decide it is better to bring
new ways in his business. For this, he started using the imported raw material used in clips, and
bought a new automated machine by investing PKR 18,000 personally with PKR 12,000 borrowed
from Akhuwat. These steps boosted his business and eventually from profit, he bought raksha (a
three wheal carry bike) which he used to transport his products to end clients. Now his monthly sale
is exceeding PKR 45,000 which is contributing PKR 12,000 to PKR 14,000.

Sofia Bibi- No name of business

Sofia Bibi having primary education with only 5 grades, started business in with a new idea of
embroidering on face of shoes with silk and sell it to big firms in Lahore city like as English Shoes.
Few years back, she and her husband were both unemployed. She has 5 kids and total members of
family are 7 with husband. When she was unemployed, he started to think about her business. She
had idea about business but due to unavailability of finances she was not able to start it. When she
came to know about Akhuwat, she applied for a loan and after getting first loan she started her
business. She introduced embroidered head of shoes and this idea was quit new in market and now
this type shoes are imported to UAE, KSA and London. At start, she get loan PKR 5000, and started
business. After repayment of her loan, he get loan thrice time more and that were PKR 10,000,
12,000 and 15,000. Recent days, sale of her product is PKR 18,000 to PKR 20,000 and she is now
earning profit PKR 7,000 to 9,000. Due to her innovative idea he got prize of PKR 10,000 from
Governor of Punjab province. Her future plan is to construct outlet for her products.

4.8 Poverty alleviation and empowerment strategy

Pakistan Poverty Alleviation Fund (PPAF) is apex institution in country for microfinance and to
deal with poverty alleviation and empowerment of poor. PPAF adopt strategy to alleviate poverty
and empower of poor by expanding its operation in four fields which are:
• Credit and Enterprise Development
• Community Physical Infrastructure
• Human and Institutional Development
• Health and Education
Funds use for activities in poor communities. PPAF execute its plans by their partner in public and
private sectors by giving them resources. In following, there is discussion about strategy of PPAF
regarding poverty alleviation and empowerment of poor:

Credit and Enterprise Development

PPAF is premier source of funding and, with its partner organizations, covering 1.27 million
current microcredit borrowers. PPAF had disbursed KR 16.6 billion with partner organizations in 80
districts. Credit and Enterprise Development division is responsible to lend regulate and disbursed
loan while considering with deep concern about geographical coverage and gender equality. In FY
2006-07, micro credit loans to women reach a record number, 266,495, the ratio of active female is
54% of total borrowers. Women borrowers are very low in number in start of PPAF that was 1.74
percent in 2000-1 but with now policy is emphasizing to lend loan to women with equality.

Fig 7: Growth in credit portfolio on Women-only Pos and CED Borrwoers by Gender (1999-
2007) (Source: PPAF,2007,p.9)
Another major approach which has been taken by PPAF is to make balance between male and
female borrowers because there was big gap between them and other issue which has been tackled
about shifting of paradigm of lending loan from agri sector to other sector like small enterprise and
livestock. At the end of year 2007, agriculture has major portion of 37% but if we include live stock
with it, almost more than 50% of total disbursement. While small enterprises have 36 % of total
loans (PPAF,2007).

Community Physical Infrastructure

For empowering of people, human development and poverty alleviation can be developed by
community physical infrastructure with other mechanism. Physical infrastructure make possible to
give quality of life and access to different facilities like drinking water supplies, sanitation facilities,
irrigation and others.
CPI division of PPAF has been spent PKR 3.918 billion through 44 partner organization. By June
2007, PPAF had financed over 13,498 infrastructure schemes, benefiting approximately 991,010
households in 110 districts including 4 tribal agencies. For FY 2006-07 PPAF initiated different
infrastructure schemes, largely concentrated on four core sectors: drinking water supply with 467
schemes, 649 irrigation schemes, and sanitation with 538 schemes and roads with 237 schemes

Human and Institutional Development

With trainings and sharpening technical skills, financial resources can be utilized with more
productivity. PPAF conducted training and skill enhancement programs by this unit for
strengthening the institutional and human resource base of partner organizations and participating
communities. In current year, PPAF spent PKR 450.87 million that was PKR 392.54 million in FY
Trainings are conducted in two sectors, one is for partners staff and other for borrowers. The
number is increasing every year and this approach will lead to best utilization of micro loan. Mostly
trainings are conducted for management skills, vocational skills, enterprise development skills,
agriculture management skills, and live stock management skills (PPAF,2007).

Health and Education

Health and Education is 4th tool to alleviate poverty and make health and education facilities
possible to poor. It is response to poverty with combining microcredit, community infrastructure,
institutional development and skill enhancement for better livelihoods.
From last two year, PPAF’s Community Health Centers are providing health services to 81,000
patients, 75 percent of whom were women. While in education sector, total 8,610 enrolments were
reported and 71 percent of whom were girls. Total fund disbursed was more PKR 100 million
through 9 partner organizations in education sector while in health sector, it was PKR 63 million

Fig 8: Geographical Dist. For Education Fig 9: Disbursement for health

(Source: PPAF,2007,p.29) (Source: PPAF,2007,p.29)

4.9 Akhuwat-Some historical facts
Before Akhuwat was established and there were not any ideas to establish it, Dr Amjad Saqib was
working at the Punjab Rural Support Program (PRSP) and there interest were charged 20 percent
which he found it very high and it is not suitable to Islamic rules, even formal banking interests
were lower which was available to ‘creditworthy’ affluent individuals. Then Dr. Saqib felt it
disturbing and however he wanted to start his own microfinance program where the loans were in
the form of Qarz-e-Hasna(Helping someone in need with interest-free loans; these are preferred
over charity). And with the first initial donation amount of Rs. 10 000 in 2001 Akhuwat was formed
and the first loan was given out to a woman. The main mission, objective of Akhuwat provide
interest free credit to the poor as the result to increase in their financial and living situations.
(Akhuwat book,p.4)
Akhuwat derives its name from the history which first experienced by people of Madina (Saudia
Arabia)shared their wealth with “muhajirin” immigrants from Makkah and the name is ‘mua-khaat’
or brotherhood. The main philosophy of this story is based on to share the resources of society with
poor and needy people. Also for Akhuwat, microcredit is a means to an end and here meaning of an
end is a vibrant, economically strong society, based on shearing resources. (Akhuwat book,p.5)
For initial few years Akhuwat was only a giving money to poor to see how microfinance which
gives credit without interest would work, but soon by 2003, hard work of Akhuwat had showed its
fruits, the donations had increased to Rs. 1,5 million and loan recovery rate was 100 percent. As a
result of consequences, Akhuwat registered as formal institution under the societies registration act
of 1860. (Akhuwat book,p.5)
So far till now, Akhuwat working in 17 branches in the Punjab (Pakistan) and with 7,150 active
clients and its total amount of disbursement in 5 years reached up to Rs 150 million which is very
good success in very short period. During these years Akhuwat still remains its mission to give free
interest loans to the poor people and also to increase their volume by starting the same activities in
other cities. Also after visit of Governor of Punjab, Lt General Khalid Maqbool in 2003, was the
reason of bringing main trust to Akhuwat. The Governor wanted to observe it in practice by meeting
with clients, which generated more publicity. The donations and applications for loans has increased
tremendously and every month 1000 new loans given out in Lahore (Akhuwat,2008).

4.10 Organizational structure

The board of ten members which consists of philanthropists, civil servants and businessmen
governs Akhuwat. As defined in the Articles of Association, the main responsibility of Akhuwat
rests on the board. And their main functions are formulate and approve policies, provide guidance
and direction on different matters and as salient responsibility they provide marketing services for
Akhuwat and most important to mobilize funds for loans. The board meets quarterly to review
operations and take policy decisions and its review take place every 3 years where change make
take place on board. (Akhuwat book,p.5)
Dr. Amjad Saqib runs Akhuwat as executive director. The organizational structure mainly consists
of the Operations department, and matters pertaining to the Human Resources, IT and other issues
are managed by the Program Manager. Organization with 52 person team which shows it is still
small company.

4.11 Philosophy of microfinance, lending by Akhuwat

To achieve its goals Akhuwat is running two types of programs microfinance program which is
directed to increase the income of poor and second program is social development program for
improving the quality of life of the poor.

Microfinance program consists of Group based loans, Individual loans and rural credit program.
Akhuwat started to give loans with The Group loans methodology in 2001 and brought individual
loans into action in 2003. Group lending loans were focused especially on women who organized in
Self Help Groups which consists of 10 people each. And group selecting the leader who would be
responsible person as a leader and 10 women should save selectively Rs 3,000 to be eligible for
receiving the loans. After that group will receive loans by turn but for return of the loans would be
responsible the whole group, however there is no any interest rates but there is membership fees
which 5 percent from amount of loan should be paid because says Dr Saqib to feel the responsibility
of the loan and they should value it if there not would be any fees the money would be just free
meal. In group lending, meetings held every 2 weeks with loan group members and Akhuwat
member staff and they discuss the further achievements of the group, problems and also some
lessons to teach group members about business ethics to develop their further business successes.
(Akhuwat book,p.7)
35 30.2
30 Group Loans

25 Individual Loans
15 12.8
10 7.8
5 1.2 0.2 2.4 2.6
2002 2003 2004 2005 2006
Fig 10:(Akhuwat book,p.8)

Individual loans and Akhuwat methodology

Akhuwat has a large portfolio of individual lending with a total of 14,711 beneficiaries and it has
devised a rigorous appraisal method to ensure maximum recovery. In 2005, individual loan
disbursements grew by almost 390 percent and in 2006 they grew by 135 percent. Almost all
process of individual loans takes place in Mosques and churches. Mosques and Churches are the
most important places to people and it is more reliable places also everybody believes each other
and trust is very strong there. According to Dr. Saqib, the decision was deliberate as he states, ‘for
far too long, we limited the use of mosques to just prayers. In between, they are desolate. With our
offices in mosques, we have saved tremendously on operational costs. We don't pay rent or utility
bills’. Furthermore, it increases the participation of people. It also attaches a religious sanctity to
returning the loan on time as the concept of accountability is intensified as it is a place of worship
and also gives the whole process a feel of ‘barkat’(means blessing). “In a Muslim society, mosque
has always been a centre of community interaction. We also want to utilize this institution for the
betterment of people living around it. We also like to work in churches as one of our branches was
established in a famous church of Lahore”, Dr. Saqib explained. People who has business idea and
plans bring it to mosques and Unit manager of Ahkuwat checks it carefully does it work or not, he
checks also the situation of family, their income must be less than Rs 1000, after checking all
qualities family members of the loan taker will sign the paper to be responsible for loan as family in
mosque, the reason to include the sign of the family members to encourage all family members to
work hard to return the loan and also maximize the benefits to for the whole family. Recently, the
name of the individual loan changed to “Family loan” for productive purposes (Akhuwat,2008).
As soon as Unit manager finishes checking application he passes application to The Branch
manager who undertakes his own appraisal of applicant. After completing, application be discussed
at credit committee which consists the Unit managers of the Branch, Branch manager and the Area
manager After checking the applicant carefully, the final decision is made after 30 days. If

committee approves application they give money to applicant in mosque. In disbursement of loan
process participate several people like Imam of the Mosque, community members and Akhuwat
staff from the branch and head office. But before receiving loan applicant has to pay 5 percent loan
fee for Akhuwat membership and also to secure the risk he should pay loan insurance 1 percent
from total amount. In case of death, family members of applicant will receive Rs 5000 to cover
funeral expenses, if he was the only earning member of family then they provided with monthly Rs
1000 during three month. If client is handicapped then the loan will be canceled and client is
provided with wheelchair. Since the loan disbursed to the client, Unit managers have to monitor
them in order to repay loan on time 7th of every month. And after repaying the loan credit
committee discusses matters how the loan was useful and what aspects to be increased or does he
had any difficulties to repay it and after that they decide to give loan again or not(Akhuwat,2008).
Also Akhuwat works on other types of loans. Loan products are family loan, Liberation loan,
Housing loan and other products. Family loan as we discussed it above, the most given loan type
and also contains 91 percent of loan portfolio. Loan amount is from some thousand till Rs 25,000,
but most common loan for the first time is Rs 10,000 and installment Rs 1,000 a month.
Liberation loans consist 5 percent of loan portfolio of Akhuwat. These loans have to be approved by
head office, if amount raise more than Rs 25,000, Executive director has to approve
Housing loans as well exists in loan portfolio of Akhuwat since last year. Its range is Rs 40 to
50,000 and has to be repaid in 2 years. Akhuwat is doing this loan cooperation with Al-Noor Umar
Welfare trust, another voluntary organization. To other loans include health, marriage and
Education loans; even if these loans are non-productive poor people need these loans to use
medicines, educate their children and to get married. The maximum amount of these loans Rs
15,000. These loans are to be repaid within one year (Akhuwat,2008).
Akhuwat also teaches its clients with technical training. They give latest news business techniques
and market information’s. Also they provide internships to new learners with skillful businessmen
who already established its enterprise to get enough experience from practice in order to run its own
business in future. Akhuwat coordinates activities with other NGOs and Social Welfare
Organizations so that social services can reach their own clients (Akhuwat,2008).

4.12 Expansion of Outreach of the company

Akhuwat with its core and different program, did it very successfully when it started to expand.
There were only 3 workers at the beginning but now this number has increased. The Board is
responsible for the review of organization and decides how to expand the outreach. But for sure it
depends on the finance how much donations received and credit pools, it is unpredictable. The
growth plan for the last year 2006-2007 was to provide with loans to 10,000 individuals and open
new branches in eight cities. As usual plan, they always take map from previous year and they
double that numbers for next year to expand the outreach. Dr Saqib says that they looking forward
to cooperate with organizations to expansion in new cities. The outreach is to teach them to the
model and provide them with credit pools and leave them do it independently outside of Lahor. He
sees success not in sustainability figures but in how widely is the model spread and replicated and
how effectively and efficiently the poor are served. He says that “Numbers overwhelm but saving
the life of one person is akin to save entire mankind. While doing so, one must also observe the
limits set by Allah Almighty”. (Akhuwat book,p.14)

4.13 Financial management of Akhuwat
Mobilizing funds
As we stated above mobilizing funds for Akhuwat is the main function of The Board. The
committee of each branch has the right to undertake initiatives to mobilize funds. Every year before
Ramazan organization hosts for fund-raising function and invites more than 1000 people. Also
Akhuwat is well known according to press which helps to raise funds. Akhuwat has its web page
which was created by volunteer students who wanted to donate in their own way. Some volunteers
are also working on marketing plans how to mobilize the funds, The Board also tries to contact with
partner organizations which help to bridging with funds (Akhuwat,2008).
Asset, Liability and Equity Composition
Akhuwat’s asset utilization (percentage of assets comprising loan portfolio) is around 78 percent
and this is better than the industry average of 42.5 percent. And its operations are financed by grants
and donations and since the 2002 Akhuwat received more than Rs 60 million as grants, this grants
was Rs 30 million only for the last year and it means the grants increased almost 158 percent
against the previous year grants.(As stated in figure 11) (Akhuwat book,p.16)
Grants received
30 28.35



10 7.15
5 1.82
2002 2003 2004 2005 2006

Fig 11: Grants received by Akhuwat

The financial picture of Akhuwat at the end of March 2007 was approximately as follows:
Assets, or uses of finance Liabilities, or sources of finance
Long term loans $ 11,000 Donations $ 983,000
Loans $ 831,000
Cash and bank $ 141,000
Total $ 983,000 $ 983,000
Income and expenditure for the year 2005/2006
Grants $ 8,000
Fees $ 57,000
Total $ 65,000
Expenses $ 75,000
Loss $ 10,000
(Pakistani rupees have been approximately converted to US$ at the rate of Rs 60=$1.00)
The operating losses were covered by special grants, which were made for the purpose, and it was
calculated that the five per cent fee would cover the full operating costs by the end of the year, as
the program expanded. (Akhuwat book,p.32-33)

4.14 Profitability and Sustainability

However, as Akhuwat does not charge any interest on its loans, and only charges a membership fee
of 5 percent, it is unable to cover its costs which stand at 7 percent, organizations performance on

profitability and sustainability improving steadily. Nonetheless, as Akhuwat increases its outreach it
will be able to lower the cost and in time will be able to cover its operating expenses. At the same
time, OSS and FSS were 77 percent for 2006 and show that Akhuwat is not sustainable at the
present as it cannot cover its operational and financial expenses. But, Akhuwat’s operational
efficiency is very high at 7.13 percent, while the industry average is 22.4 percent. Due to this
financial indicator Akhuwat can achieve sustainability easily. (Akhuwat book,p.18)
According to the model, Akhuwat is not charging any interest fees for clients; otherwise they could
easily achieve sustainability for 100 percent. Even if they do not charge any interests, due to their
outreach expansion, the costs per borrower fall due to economies of scale, sustainability will also

5 Analysis of data and interpretation

In this section, we analyzed empirical data by the help of conceptual framework, developed after
literature review. We presented analysis regarding need of interactive strategy of microfinance and
entrepreneurship, social services and intermediation by Akhuwat and sustainability issue.

5.1 Empowerment and Microfinance- Need of interactive strategy in Pakistan

Need of microfinance in Pakistan is crucial because of low poverty, major population living in rural
areas, low human development, low skilled labor, non availability of basic human necessities and
low number of opportunities to access of finance for business setup. The country has got struggling
figures about poverty, education, health and business opportunities.
In country, unemployment rate is more in rural area while by gender; women are more affected by
unemployment. In urban areas, more than 15% women are unemployed. It is due to many reasons
including cultural problems, traditions, education, small number of business opportunities and
hurdles to access to finance. Therefore Pakistan has big market for micro businesses that directly
needs microfinance both in rural and urban areas.
Comparative Poverty Profile, (table1, p35), shows that people live under poverty more than 24 %
while 6.5 is ultra poor. Further more, due to high inflation rate, poor economic conditions, bad law
and order situation, political instability and increase in oil prices are pushing people from
‘Vulnerable’ category to ‘Poor’ category, that lead to unemployment also. By which these
conditions put pressure on poor to come with different strategy to fight against poverty, and the best
way that government, and society as a whole to encourage people for business , bring innovation in
their idea and there should be easy access to finance. Microfinance can be a one product that can
facilitate poor to start their business.
Different sectors that are involved for poverty reduction and empowerment of poor are education,
health, micro loans, water supply and sanitation, social security and welfare, rural development and
others. But this is very tragic situation in country the expenditure of these factor as per percentage
to GDP is very low. Expense on education sector is only 1.84 of total GDP, while Health is only
0.51 percent. How any government can empower with these low budgetary expenses?
As we mentioned in start of discussion, Pakistan is country where microfinance could become
essential tool for poverty alleviation, there is need of microfinance activities at large scale by MFIs
with extensive support of government. Microfinance and encouraging people to implement
entrepreneurial ideas in their business, both public and private sectors must take initiatives in
microfinance field so that poverty can be reduced and poor’s empowerment will be possible.

5.2 Expanding outreach of Akhuwat-Empowering more people

Akhuwat is working in two provinces, Punjab and Sindh, covering the cities, Lahore, with eight
branches, Rawalpindi, Faisalabad, Multan, Gujrat, Karachi, and small towns including Sharaq pur,
Dijkot, Samundari, Chiniot, Lodhran, Jehanian, Duniyapur and Krore Pucca. Akhuwat is
emphasizing to lend loans in urban areas but by approaching small towns, outreach is expanding to
rural areas also. Pakistan is mainly emphasize on agriculture, and textile products which are 70% of
total export and two third of population is living in rural areas, so there is excessive need to expand
microfinance operations in rural areas. The other major reason to expand outreach is unavailability
of microfinance or availability with higher interest rates. In urban areas, women are more
empowered because of literacy, accessibility to human needs, and more business opportunities but
in rural areas, women have not large number of business opportunities. Akhuwat’s strategy for
outreach should be based on:

• Expanding outreach by expanding operations to more small towns and rural areas
• Expanding outreach by increasing in borrowers

Donation/Grants to
increase in credit pool

Outreach of Akhuwat

Expanding outreach by
Expanding outreach by increasing in no.
increasing no. Of branches

Fig 12: Outreach expansion paradigm

As in fig (12), outreach of Akhuwat can be increased by expanding credit pool. If there will be
increase credit pool by donation or any other mean, it will effect on outreach because more finance
will open the door to cover more poor. The second way to increase credit pool is by adding profit,
getting from lending operations, and adds it to credit pool and circulate it. But in case of Akhuwat,
only 5percent is charged on loan as an membership fee, while the administrative cost is more than 7
percent on each lending. Therefore, there is no contribution from Akhuwat’s own operation in to
credit pool. This is the area where there is need of improvement and practice with innovation and
entrepreneurial approach.

5.3 Why Akhuwat adopted Islamic microfinance-Was there any need?

Pakistan foundation was based on “Two Nation Theory” and from the start, it was basic demand of
people that access to finance should be easy and it should be basis on Islamic teachings.
After introduction of clause in 1973’s constitutions that Government will take steps towards interest
free banking, in 1979, initial step was taken towards Islamic finance by starting operation of NIT
and ICP by interest free operations and investments. All banks now have two types of loans, PLS
(Profit and Loss sharing) account for deposits and current account. As we have already discussed
that more than 95 % of population is Muslims, and try to adopt Islamic practices. This is the reason
that Islamic banking sector is growing with fast speed and now Islamic banking have 3.8 % of total
deposits in banking sector of Pakistan and this percentage reached in few years only.
When I questioned from Zahid Husain about advantages of Islamic banking that why Islamic
banking practice’s growth is so high, he replied that Islamic banking system has been misinterpreted
in past that only Muslims are only the customers and Islamic banking system is only for Muslims
but it is not so true. He said that Islamic banking system a wide range of products including
Musharaka, Mudaraba, Murabahah, Ijara and some other products related to insurance. The
important advantages of Islamic products are that these are at principal of profit and loss sharing.
On deposit side, profit is not fixed but distribute after some specific period that is fluctuated and it is
more than traditional banking system. While on investments and lending loan, it is based on same
profit and loss sharing principal with some other methodologies. These principals attract both
investor and borrowers to share ideas and expertise and put efforts from both sides to make a
successful business. He also said that Islamic banking system follows the moral values, when any
company is defaulted or when bank charge profit on any product. When I asked about challenges
and problems regarding Islamic banking system, Zahid Hussain replied that one of the major
challenge is misconception that Islamic banking system is executing in only Islamic countries and
only Muslims are utilizing Islamic banking products but it is not right as prescribed. He gave
example that Citi Group, HSBC are also securing their market in Islamic Banking. According to
him, this misconception should be removed. The other is issuing of credit cards by Islamic means.
In this area, there is needed to be more research to formulate a model for credit cards.
In our opinion, three factors are important in growth of Islamic banking in Pakistan. These factors
• Strict Islamic teaching about prohibition of Riba (Interest) on loans therefore people are very
keen to follow teaching of Islam and use such banking service which are interest free.
• Constitutional and legal aspects about interest (Riba) and its prohibition, therefore banks are
responsible to adopt Islamic banking practices.
• Profit and /or loss sharing based products attract customers to adopt.

Due to these reasons, 6 Islamic Banks and 12 commercial banks with Islamic products are gaining
and maximizing share of bank industry year by year. Now Islamic banking sector have share 3. 8%
of total Pakistan’s banking Industry with deposits of PKR 124 billions.
By the help of this discussion, we can perceive that Islamic Micro Finance (IMF) practices will
grow in rapid mode and borrowers will adopt Islamic microfinance practices. Microfinance banks
and strategy adopted by SBP for microfinance is quite new. After ordinance in 2001, microfinance
practice got boosted and with 6 MFBs and many NGO MFIs, microfinance outreach has reached to
more than one million borrowers which is projected to reach to 3 million by 2010. Islamic
microfinance is quite new and from empirical data, we found that no one is practicing IMF practices
except Akhuwat.
Discussing issue with Zahid Awan about practices of Islamic microfinance, and its products, he
elaborated that IMF is in practice from era of Holy Prophet (PBUH) by inventing Qard-e-Hassan
way by which Holy Prophet (PBUH) encourage rich people to give finances to poor people those
have nothing for guarantee and give open to repayment so that they can use this money in business,
earn profit and repay it. But this way is not in practice as a banking service or microfinance service.
According to him, in following there are some advantages of Islamic Microfinance:

• IMF products, like Musharaka and Mudaraba, are based on partnership of both lender and
borrower that increase participation of both sides in business activities
• Profit sharing schemes can minimize risk on loans and this can be advantage for borrower
also to increase productivity of business and earn more profit.
• By Murabahah scheme, IMFIs can minimize risk factor by increasing risks
• Poor borrowers, normally, more loyal to their business because they have no other way to
earn and hard worker, therefore default rate is low in microfinance. By adding Islamic
teaching, binding is stronger and therefore poor return loan with motivation.
• Islam teaches every rich Muslim to give loans to poor or give charity to poor. IMFIs should
minimize profit as much as possible because of Islamic teachings for poor. So IMF is very
suitable microfinance services for poor
• Islam encourages Muslims to give Sadqa, Ushar, and Zakat to poor. Zakat is compulsory on
every rich Muslim to give 2.5 percent of his total wealth to poor. Sadqa is not compulsory

but Ushar is compulsory on every landlord. The amount collected by these accounts must
give to poor. IMFIs have more resources to collect funds and charity to finance poor.
While discussing the challenges to Islamic microfinance Zahid Hossain indicated:
• Risk factor is high in MF, therefore being a new field, there is high risk involved on IMF
• Every MFI has huge number of borrowers because of this they collect a very low amount as
loan. IMF produces like Musharaka or Mudaraba are based on partnership between
borrowers and lender, and profit can be share if daily transactions can be recorded. But for
micro business, people do not keep daily record, even no written slip or record. Another
reason is that, borrowers may be illiterate, so they will not be able to record it. So how
IMFIs can manage profit sharing and on what basis, then will share profit?

5.4 Akhuwat’s Innovation for lending loans-adding components in Grameen Model

In Pakistan, three different kinds of methods for lending loans are in practice. AKRSP followed
community based organization, while KASHF and most MFIs adopted Grameen Model, while few
MFIs are serving individuals also with solidarity group. Akhuwat learned from experience adopted
individual lending with innovation and adding few new components in already practice method.
Following are some distinct points of model:
• Every branch is associated with a central mosque in the locality where operation will be
• Introduction programs are given after the prayer. Mosques in Islam are a central location for
social gathering and provide opportunity to meet 5 times in a day and Akhuwat utilizes this
opportunity. While in Church for Christians and Mender for Hindu. It makes it possible to
reach more people and repeatedly meeting with borrowers and people.
• Utilizing of mosque as meeting place, save utilities expense that indirectly facilitate to
borrowers in the form of interest free loans
• Akhuwat calls individual loan to family loan because of interaction with family before
giving loans and making wife a copartner of loan.
• Special check and counter check on borrowers for criminal allegation or drug addiction
• Disbursement will take place in mosque and purpose is to make sure that matters are looked
over in an honest and transparent way. The motive behind this is the religious sanctity to
returning the loan on time as the concept of accountability is intensified as mosque is a place
of worship and also it gives whole process a feel of ‘barakat’ (blessings).
• 5 percent of total is charged as membership/administration fee.
• 1 percent is charged as insurance of business that give following benefits:
o Insurance covers risk of death. In case of death, loan is written off and PKR 5000 is
provided for funeral expense
o If that client was only the earning member then PKR 1000 per month is provided for
three month for basic expenditure
o In case of handicapped then loan is written off and provided wheelchair
• On completion of repayment, borrowers will be facilitated by Akhuwat with additional loan
• “Akhuwat online” idea that will be implemented in near future by which donors can interact
online-video conferencing with borrowers and can monitor their donation. By this method,
Akhuwat want to increase number and amount of donation. (Akhuwat hand book and

5.5 Challenges to Akhuwat’s way of microfinance
While studying Akhuwat’s way, there are many things which should be more discussed and some
challenges Akhuwat can face in future.
Akhuwat has adopted Qard-e-Hassan way of microfinance in which loan is given to borrower
without interest but MFIs can charge some percentage of amount as administrative/membership fee
and require two or more guarantor as social collateral. Akhuwat is charging 5 percent as
membership fee on loan amount. But when operation will expand, and when there will be big
number of borrowers then it will be difficult for Akhuwat to maintain administrative expense with
amount of 5 percent membership fee which is not sufficient to cover administrative cost of
organization that is 7 percent per loan. Now membership fee is covering 76% of total administrative
cost while 24 % short fall is covering by contribution from board of Directors of Akhuwat. When I
asked this question to Dr. Amjad Saqib, he replied that Akhuwat is adopting two pronged strategy,
one is broadened funding opportunities by implementing different strategies like implementation of
“Akhuwat online” and have plan to implement Muharabah way of financing. But it is not still
Other challenge that Akhuwat can face is lending to individual, even it is successful till now. The
problem that organization can face is that if business will go to default and person has nothing to
pay and even no group based social collateral which can pressurize him/her like as solidarity group.
To deal individual and to keep check and track loan case of that individual will bring more cost. But
responding to this point, Dr. Amjad Saqib said that we, therefore, use Mosque as a hub of loan
lending activities to minimize cost and keep close relation with customers. But still, this is question
that keeps record of 25000 borrowers take less expense or keeps record of 2500 groups? To get
explanation on this issue, we raised before Zahid Hussain, he admitted that the big problem MFIs
face is big risk and financial set back to MFIs that result into higher interest rate, there are two
strategies to handle the issue of financial risks and high administrative cost; one is to decrease
administrative cost by adopting innovative approaches, second is to bring some more innovations in
social collateral.

5.6 Social services and intermediation by Akhuwat

Poor need more than microfinance to address the problems of poverty and accessibility to other life
needs like food, health, family planning, education , social support network and so on. Therefore,
Ledgerwood (2000) addresses that MFIs serve to their clients with additional social services with
financial intermediation. Social intermediations are included Group formation, Leadership training
and Cooperative learning, while social services are included Education, health and nutrition and
literacy training.
PPAF which is an apex institution is doing its operations in community physical infrastructure,
human and institutional development and health and education, with credit and enterprise
Table 2: Amount spent by PPAF on different social services and social intermediation
(amount is in million )
Sectors Amount spent in 2007 (PKR)
Credit and enterprise 16,600
Community physical 3,198
Human and institutional 450.87
Health and education 163

PPAF strategy is supporting the idea that microfinance is development tool rather than only
financial service provider. According to Ledgerwood(2000,pp.1) ,microfinance is not simply
banking system but development tool, combining both financial and social intermediation.
Akhuwat’s model is also supporting the idea of “microfinance as a development tool”. Akhuwat is
not giving micro credit but offering liberation loan, housing loan, loan for education, health and
marriage. Akhuwat adopt innovation in one kind of loan, liberation loan, which is not so common in
Pakistan. People get loans from one bank on any account and pay it to another banks but no
commercial bank is offering that kind of service.

Fig. 13: Disbursement loan by Akhuwat in different social services and in micro lending (Data
source: Akhuwat handbook)

Family loan is the same individual loan that we discussed in previous section. This loan is used set
up a new business or to extend the previous one. Family loan is 91 % of total loan disbursed by

Liberation loan is for those poor who borrowed money from other lender on high interest rates.
Akhuwat pays principal amount of loan to lender and the borrower then repay this amount to
Akhuwat in installment. Liberation loan is 5 percent of total disbursed amount. In Pakistan,
especially in rural areas, individual loan lender give loan to poor on more than 30 percent and many
cases, rate increase to 50 percent per year. In case of default, poor live like slave and there were
many cases reported in media that whole family worked on landlord’s land to repay amount with
interest, and they worked many years to repay only few thousands. Liberation loan is somewhat an
innovative product that is helping poor to come out from salivary life and start their own business.

Housing loan is not common practice of MFIs in Pakistan. Housing is a big problem in Pakistan
because of increase in rates of house rent and houses. Since few years back, real estate is one of
such sector where huge investment came that in result increase in prices. Pakistanis living outside
country especially in USA invest in real estate because of instability in peace and economy after
9/11 event. Due to these reasons, real estate prices increase and it is very difficult for poor to build
their own house. Akhuwat’s housing loans facilitate poor to purchase home or build a new one.

Health, Marriage and Education loans are contributing to lift the standards of poor. Poor people
generally invest all amounts which they have and borrowed and if they face any problem regarding

their health, they will spend money from their business which in result brings down his/her business.
To eliminate this pressure, Akhuwat is offering loan for health, education and marriage. These loans
positively effect and indirectly give benefit to poor and to his business.
While addressing the issue of social needs and services, Akhuwat coordinates activities with other
NGOs and Social Welfare Organization so that poor can get benefits from social services.
Enterprise development: Enterprise Development is another tool that facilitate poor with micro
lending. MFIs offer trainings to poor entrepreneurs to develop expertise and skills so that can
produce more productive results. Akhuwat offer trainings to their borrower for their enterprise so
they can come up to deal their business with technical skills. When I asked the question from all 9
borrowers during interview about training, few replied that they trained and give suggestions to
other new borrowers who are first time starter in business. Akhuwat in this way, facilitate borrowers
for get together and share their skills, experience.

Credit and Enterprise Community Physical

Development Structure

Poverty reduction
and empowerment
of people

Human and Instituinal Health and Educaton


Fig14 : Poverty reduction and empowerment of poor model

From fig (14), we elaborate that by 4 factors, country can fight with poverty and empower poor
people. If people will have access to all basic human needs, no threat of finance, they can express
their views freely. As we discussed, microfinance is a development tool, combination of micro
lending with other factors can make possible to alleviate poverty.

5.7 Contribution of Micro entrepreneurship in micro enterprise and some success stories
of Akhuwat
According to Mondal (p.2), poor start business by getting finance from MFIs and act as either micro
borrower or micro entrepreneur. Micro borrower get loan and start business and don’t take any
innovation in his/her business while micro entrepreneur start business and start trying new ideas,
bring innovation in his/her business process. Microentrepreneur takes risk, bring innovation, and do
business different from others. This risk taking behavior normally is not present at micro finance
borrowers because of having less technical skills, illiteracy, and small number of options to do new
experiences. As Timmons (Bengtsson, Peterson, 2008,p.6) describes three entrepreneurial
components, Opportunity, Resource and the Team. The entrepreneur exploits opportunities by using
resources with the help of a team and produces a new production system according to Schumpeter
theory of innovation.
As we discussed in empirical chapter about entrepreneurship in Pakistan that economic policies of
governments in Pakistan always favor to large scale industry as government thought that
entrepreneurship is present in large scale industry therefore no supportive policies for SME sector
and micro business sector were issued.
In Pakistan, microfinance borrowers are doing business successfully and therefore repayment ratio
is more than 90 percent of many MFIs and for Akhuwat, this ratio is more than 99 percent. Some
borrowers are doing business in general way , just to earn profit and boost up their economic
condition while few borrowers are also experiencing new business process and try to innovate new
production system or reconstruct production system in a new way. The other method they use to
reproduce products in lesser cost and sell it on with fewer prices than other market.
In empirical findings chapter, we presented 9 stories of micro enterprises, their business
introduction, strategy, way of business and earning. We found that many of them are doing business
in innovative way by brining innovations in production system. We selected two micro enterprises
and analyzed weather entrepreneurship exists on micro enterprise level or not and what is
contribution of entrepreneurship in their business success. We analyzed each business by two
theories, Schumpeter theory of innovation and Austrian prospective about entrepreneurship,

5.7.1 Gulzar Ahmad-A microentrepreneur bring quality in competitive market

Gulzar Ahmad got loan from Akhuwat and started his business with the name of Madina Trader. He
produced plastic clips with one hand operated machine. During first year, he was thinking that he
can produce the same product by producing it in cheaper price but with higher quality than
competitor. According (Kirzner,1997) entrepreneurial discovery emerged in Austrian economics by
evolving elements:

• Market is act as entrepreneurially driven process

• Knowledge which can be increase by market interaction
• Entrepreneur anticipating market and need of customers exactly and correctly
• Produce more cheaply than competitor and earn profit

In our opinion, Mr. Ahmad’s business case is fulfilling the concept of Austrian theory. He started
business with a one machine and supplied his product to market. But he thought that he was doing
the same as other doing. There was no such distinction even in prices so in competitive market
where big player is present, his survival became difficult. After repayment of first loan he applied
loan again of PKR 12,000 and invested his own 18,000 which he earned in first year of his business.
He learned from market gained knowledge that with out adopting different approach, it would be
difficult to survive in market. Therefore he put three new initiatives in his business; all was carrying
risks for such a small business:

1. He bought a new automatic machine so that he could produce large quantity of clips in less
time, with more finishing of products.
2. He decided to use higher quality imported plastic because his rivals were using local
material at small scales. He was first one in market who started to use imported plastic.
3. Plan to buy his own transport (Raksha, a three wheel motor bike with two seats at back of
driver. It can be used for transportation of goods and passengers.) so that he could minimize
transportation expense when he supplied clips to different firms. But he planned to buy
Raksha few months later.
To expand his business, he started to search some more firms where he could sell clips because now
he had more capacity to produce clips with higher quality. At this stage he was succeeded because

of quality product. At this stage, market process and activity was directly interacting and process by
entrepreneurial behavior.
Few months later, he bought a Raksha, and then he minimizes prices because he deducts cost of
transportation from total product price. By this step, he was able to produce quality products with
cheaper rates and expanded market. After successfully repayment of loan, he got again and
purchased another machine and his wife became a team member of his business. He got and utilized
opportunities and used his resources in innovative way and work as a team leader by adding his
brother and wife in his business. Now his monthly sale has jumped to more than PKR 45,000 and he
is now earning PKR 12,000 to 14,000 profits per month. Now his kids are studying in a good
standard school, having accessibility to basic human needs, and using his own transportation. Now
he is planning to expand his business by purchasing a machine by which he can produce electricity
button. So, entrepreneurial behavior is working with more innovative business ideas.

5.7.2 Sofia Bibi- Innovation in Production system

Sofia Bibi started her business by producing silk based embroidered face of shoes to different local
shoe produces. We analyze Sofia’s case by Schumpeter theory of innovation. We take following
points to analyze the case:
• Introduction of new good for users or new quality of good
• Opening of new market
• The conquest of a new source of supply of raw material
• Carrying out of the new organization of any industry
Generally in Pakistan, embroidery on cloth is very famous and female prefer to wear such kind of
suiting on marriage or other social events. Cotton thread, silk, gold, silver are used for embroidering
cloths. In shoes, silk is not so famous to use for embroidering of head of shoes. It is difficult to find
that how either silk is using in embroidering of face of shoes or not but according to Sofia bb, she
did not see anywhere else that anyone can use silk embroidering. But she gave this idea to English
shoes by her husband and English shoes were ready to producing of such kind of shoes. In our
opinion, there is chances that silk may use before she used but still this idea came under Schumpeter
approach because he started her business with an innovative idea that was not so much in practice in
market and he produce a new quality of good.
The best practice they started in their business was that they produce face of shoes for a big player
in shoe industry, English shoes. It was a new market for English shoes and also for Sofia bb.
English Shoes have their outlets in Pakistan, London, Dubai and Kingdom of Saudi Arabia. By this
step, Sofia bb opens a new market for her product.
Silk normally use for embroidering of cloth. Sofia Bibi started her business by producing such kind
of products where she started to make use of input material in a new form. It was not so common in
Pakistan and using raw materials in such way made it possible for her to reach in new market. Due
to her innovative idea she got prize money of PKR 10,000 from Governor of Punjab province.
While discussing for future prospect, she has planned to open her own outlet where she can present
her own artwork and maximize her clientage and market.

5.8 Social Entrepreneurship and Akhuwat

As we stated at the beginning of our thesis, from our model we divide it into several parts and one
of them is to analyze social entrepreneurship qualities from side of Akhuwat.
From our theories there was very good phrase: “what makes social entrepreneurship social, and
what makes it entrepreneurship”( Peredo, McLean ,2006,pp.57) On both points we can give a lot of
facts in case of Akhuwat towards the theories of researchers. Of course “Entrepreneurship” without

Schumpeter is unimaginable. As he stated (Swedberg R.,2000, p. 15) that Entrepreneur the person
who innovates and makes the change. We can without any doubt say Akhuwat’s executive manager
a social Entrepreneur as Schumpeter described. In the early months of 2001, following a visit to a
Punjab Rural Support Program (PRSP) community site in Raiwind, Dr Amjad Saquib and his 1985
Civil Service Academy batch mates decided to meet for dinner at the Gymkhana Club. At the dinner,
conversation veered toward the efficacy of poverty alleviation programs such as those operated
through the Punjab Rural Support Program, where Dr Saquib was General Manager. Dr Saquib’s
colleagues said that with such high lending rates (20 %), the microfinance activities could not make
a real difference in the lives of the poor. Dr. Saquib suggested that with free capital, the rates could
be brought down and poverty alleviation efforts made more effective. Mr. Saleem Ahmad Ranjha,
made a spontaneous contribution of Rs 10,000, and requested Dr Saquib to implement his ideas.
Thus the Akhuwat credit pool was established and the first donation was loaned to a woman. The
group to which she belonged was symbolically named Bismillah(Begin in the name of Allah the
most Beneficent the most Merciful) Group. Eventually, the lending pool expanded to Rs.100, 000.
In a few months, a contribution of Rs.200, 000 extended the lending arrangement to five-six groups
of women. As a General Manager of the Punjab Rural Support Program (PRSP), he found charging
20% interest rate on the loans as disturbing. So in order to alleviate poverty he found out his new
model of microcredit without interest.
And also there are many researchers who still argue between not for profit and for profit types of
Social Entrepreneurship which some authors assure that Social Entrepreneurship organizations must
be only not for profit way, while others think that it may be for creating value for owner as a profit
generation. At the same time some researchers states about third type which contains both not for
profit and for profit sectors and appear hybrid type of creating social value, but in our Case of
Akhuwat, organization is not for profit organization, and never thought to be for profit generating
here are the words of Dr Saqib about it: “We have served more than 22,000 borrowers to-date. For
us it is neither business, nor industry, hence, there is no question of profitability “. Dr. Amjad Saqib,
Executive Director, Akhuwat tells NGO World.
As Anderson and Dees (2002) stated that “Social entrepreneurship is about finding new and better
ways to create and sustain social value’’ (p. 192). Akhuwat riches the real people who really need
money to do business not to buy cars or get rich and think to go to travel around the world but
people who needs to earn some money in order to sustain themselves to buy daily food to live.
Social Entrepreneurship concept: an activity that includes ability to find out specific social problems
and specific solutions for these problems in society to address it; the evaluation of the social impact,
the business model and the sustainability of the venture; and the creation of a social mission-
oriented for-profit or a business-oriented nonprofit entity.( A.M. Peredo, M. McLean / Journal of
World Business 41 (2006) 56–65).Lets look what Akhuwat doing towards this concept, As we
wrote above there is no any interest rate for loans just only At the start of a loan agreement, a
membership fee of up to 6 per cent of the loan is paid towards the operational expenses (5 %
servicing, delivery, and 1% insurance) of the organization. Minimum loans are for Rs 1,000 and
maximum are for Rs 20,000. Loans amounting to less than Rs. 4000 are exempt from membership
and insurance fee. Most loans are in the Rs 10,000 range. These are paid back at Rs 1,000 per
month. (Akhuwat book, p.10)Yes, operational expanses should be covered but for this amount of
money they cover only 70 percent of the expenses and the rest are paid by The Board of Managers.
Amazing, Executive director Dr Saqib works for nothing, he does not receive any amount of money
as a salary, also The Board of Directors who sustains of Akhuwat to find funds and donations for
loans and decide a lot of things in the organization work process work for free. And there are many
volunteers such as students who help to open official web page of organization and now helping to
donate money through internet, some professionals in microfinance, auditors to check working
process and many people. For example, another well-wisher suggested a ‘Friends of Akhuwat’
program for the UK, where individuals can donate £100 a year to the credit pool of the organization.
These ideas need to be strengthened and developed. (Akhuwat book,p.6)
Dr Saquib, the Executive Director, works on a voluntary basis. The use of the mosque as the
organization’s infrastructure has replaced the use of PRSP’s premises. Group loans are mainly
administered from the houses of the group presidents where all fortnightly meetings are convened.
Core staff consists of fifty five main workers, paid through the operational pool. There had been
only two core workers in the organization’s early years. No vehicles have been bought, and those
using personal conveyance for Akhuwat work are compensated according to a fixed rate.
Volunteers help in the retrieval of payments at the beginning of the month, as well as in reminding
borrowers to repay. In general, it was not easy for Akhuwats success as Dr Saqib said: “We feel no
embarrassment in asking for favors or contributions from others, or using our contacts for
Akhuwat.” All the Directors use their personal contacts and influence to further Akhuwat’s work.
They are all apparently convinced that their remuneration lay in the fact that “they are able to carry
out God’s work.” We can easily say that they innovated a new type of microcredit organization
which works for poorest of the poor and they made a change by bringing a change to the lives of
people by giving them hope and place from their ideas to start their business with their own ideas.
Yes, they are innovative and they are change makers. (Akhuwat book,p.24-26)

5.9 New way of serving poor in Microfinance field

The World Bank (2003) states that services to satisfy basic human needs, particularly those that
contribute to health and education, are failing poor people in terms of access, quality, and
affordability. The main reason for this is public spending are not reaching poor people if it reaches
it is in poor quality and still their needs remaining unmet. But because of growing number of
initiatives of Social Entrepreneurship field who searches new ways and problems in society and
solve this society problems in different way. According to Seelosa & Mair(2005,p.48)“Employing
novel types of resources and combining them in new ways, Social Entrepreneurship is a rich field
for the discovery of inspired models of value creation”. As we gave a lot of examples of initiatives
which “The Institute for OneWorld Health” (USA) pharmaceutical organization helps to countries
where they cannot reach any pharmaceutical goods which they need it but they can not afford to buy
it, “Sakem”(Egypt) as well Egyptian organization not only creates economic, social, and cultural
value, but also has a significant influence to Egyptian society. And finally The Grameen bank
founded in 1976 to supply credit to those who would not qualify as customers of established banks
by Muhammad Yunus an economics professor, And received Noble Prize for his challenges for
established organizations to prove that poor people as well has ability to open their own business
and able to pay back loan interests at required time zones (Grameen Communications, 2004).
Our actual case study as well in microfinance field which acts with name Akhuwat founded in 2001
by Dr Amjad Saqib. While a lot of established organizations failed to support to give loans to poor
people, Akhuwat organization from 2001 till 2006 has 6,000 active borrowers including both the
individual borrowers and group loans. Akhuwat has served 13,000 beneficiaries through a credit
pool of Rs. 60 million and it has disbursed loans worth Rs. 130 million. Akhuwat has expanded
outside Lahore and now has a total of 11 branches in Lahore, Rawalpindi and Faisalabad. All this
expansion is done whilst keeping the loans interest free with the same membership fee of 5%.
Akhuwat is a novel initiative, which entirely banks on civil society; it has been able to use the
existing network of mosques and churches as its branch offices and to bring marginalized
communities together for community meetings, loan appraisals and recovery and training events.
Akhuwat operates with a small team of core staff and has succeeded in mobilizing volunteers to
perform various administrative and professional tasks which have contributed to the low operational
costs of the organization. Akhuwat does not seek funding from international aid agencies but
depends on the generous spirit of its board of directors, local businessmen and philanthropists to
contribute to its credit pool. The loans are interest free and there repayment schedule is flexible and
decided by the borrowers according to the size of loan and the nature of expected return on micro-
Akhuwat is a concept where a well-to-do family sponsors one or more poor families. Many poor
families can be saved from abject poverty by sharing some of our resources. The loan, Akhuwat
provides is given for one year and once returned it is lent again to another underprivileged family.
The more the society donates the more benefits the poor will reap. The program was started with a
paltry sum of Rs. 10,000 and has been able to create a Qarz-a-Hasna Fund or Credit Pool of 60
million rupees. The President of Pakistan, General Pervaiz Musharraf and the Governor of Punjab,
Lt. Gen. Khalid Maqbool is amongst the many donors of the fund. The donations range from a few
thousand to millions of rupees. The hallmark is total reliance on civil society and on the Pakistani
philanthropists imbibed with the spirit of Mua’khat. (Akhuwat book, p. 26)
However, Grameen bank is also serving poor people since 1976, but Akhuwat’s way of micro
financing is totally different and has a new model. The interest rates are the first big difference
which in Grameen bank this rate is very high, but the same issue in Akhuwat it is interests free and
only charged 6 %(5 % for loan 1% for insurance) at the beginning. Second issue is operational
expenses which Akhuwat try not to spend much money for operational expanses for vehicles,
renting house for offices and salaries of The Board managers who works on voluntary basis.

5.10 Contribution of Akhuwat to sustainable development

As we know we running across with global threats to the world like terrorism, war, natural
catastrophes, the hungry and the diseased pictures still busting in newspapers and TV’s and mainly
they touches poor people which loose their houses, or death. Even for example, lately, in China’s
Sichuan province there was terrible earthquake which buried more than 15,000 people, mostly poor
(CNN,14 may 2008)When I asked a question from the Chinese student about disaster and giving
him my regrets, and he answer me with deep breath in sane “mostly, the power of nature earthquake
buried under shelters are poor people who live in old and not in good situation shelters ”. Yes,
again poor people who always in summits of Millennium development goals protected in books but
not in action. Such kind of examples are a lot, may be our inks not enough to describe about of them,
but anyway everybody must be responsible for poor people even in their own province, region and
city. One of such kind of person and organization is Akhuwat under executive director Dr Amjad
Saqib. He thinks that “every global problems begins in local places which must be managed locally
by social entrepreneurs, that’s why in order to solve global problems, we should find solutions to
local problems which in result may cause global problems.” At the same time United Nations called
all countries to spread sustainable development problems globally and stated: No single blueprint
of sustainability can be found, as economic and social systems and ecological conditions differ
widely among countries. Each nation will have to work out its own concrete policy implications.
Yet irrespective of these differences, sustainable development should be seen as a global objective.’
(United Nations General Assembly 1987) To put into action sustainable development, United
Nations defined a set of Millennium Development Goals which based on The Resolution by the
General Assembly in September 2000 in which included 8 specific, quantifiable and monitor able
goals for development and poverty alleviation by 2015. Human rights, health, education and
environmental issues included to the Goals ( Seelos, Mair, 2005). Akhuwat provide poor people
several types of loan products which includes Group loans, individual loans, loans for health,
educational loans and house loans. And all of them are available only for poor people and most
importantly without interest. If we look at loan portfolio of organization most loans 91 %(13,351st)
goes for enterprise loans, 5 %(762st) for liberation loans, housing loans 1%(147), education loans
1%(132), marriage loans 1%(218) and finally health loans !%(101). Most loans are given to
enterprise loans especially individual and group loans. As we see from portfolio of distribution of
loans, the Organization is doing well towards sustainable development goals, which include areas
most importantly economic development, for future needs of new generation, health, education and
environment problems. (Akhuwat book,p.5-6)
And here we want to give description for Sustainable Development as Brundtland’s (1987)
definition of SD as “development that meets the needs of the present without compromising the
ability of future generations to meet their own needs” And many initiatives of Social
Entrepreneurship such as Sakem, BRAC and of course Akhuwat make abstract notion of
Sustainable Development definition to move to practice. If we see definition carefully we can notice
three aspects in it which : 1) satisfying basic human needs; 2) form communities that establish
norms, rights and collaborative behavior; 3) transfer more abstract needs of future generations into
action today( Seelos Mair ,2005).

Satisfying basic human needs, as Brundtland(1987) “ report that priority be given to satisfying the
essential needs of the poor” ( Seelos Mair ,2005,p.8). Akhuwat as basic contribution to basic needs
of people creating job places for people and giving them opportunity to sustain their lives by
themselves by providing poor layer of society with group and individual loans without interest. Also
Akhuwat’s Group lending program only focused on women who were organized in Self Help
Groups (SHGs) of 10 members each and thus relied on social collateral. Main idea is to give
inactive layer of society women to be active sustaining their family. And there are some social sides
such as 1 % insurance which paid by poor for loan just incase of death the loan is written off and
the family is provided Rs.5,000 for funeral expenses. If the client was the only earning member of
the household then the family is provided with Rs.1, 000 a month for three months to meet basic
expenditures. If the client becomes handicapped then again the loan is written off and he is provided
a wheelchair. And also we want to mention about own workers of Akhuwat that Unit Managers get
a bonus for 100 percent recovery in their monthly pay and if they have disbursed more than 150
loans and are meeting their monthly target of disbursing 25 loans a month, they are eligible for an
interest free loan to purchase a motorcycle. Akhuwat also provides its staff with some medical
facilities and educational allowance for their children. Furthermore, staff members get an extra
month’s salary every year. (Akhuwat book,p.13)
Changing norms and behavior to create opportunities
As stated by Brundtland(1987) as a second important development aspect that the poor be given the
‘opportunity to satisfy their aspirations for a better life’. And health and social issues ware taken as
important aspects before operationalize in economic life ( Seelos Mair ,2005). Akhuwat provide its
first loans as a group loans to the group of women who was socially passive in Pakistan. Women in
Pakistan were the most vulnerable and had the least rights comparing to the men. As Akhuwat
started to give loans to women, their rights in society and economic life increased and with these
activities Akhuwat changed the rules and perceptions about women also reduced inequality between
genders. As group loan process groups which contain women meet every week to repay their loans
and discuss their ideas for future plans. This instilled discipline, mutual support and individual as
well as communal responsibility created by Akhuwat. Also unusual type of micro financing which
created new model by Dr Saqib also changed perceptions about microfinance that it is possible to
give interest free loans and rich 100 % sustainable development. (Akhuwat book,p.18)
To think and create environment for future generations need
As third aspect stated Brandtland(1987) was satisfying current generations need achieved by
“without compromising the ability of future generations to meet their own needs”  ( Seelos Mair
,2005,p.9). Future generations need abstract to us and we don’t know exactly what they need but we
know that they have to choose it freely by themselves and our main issue as sustainable
development is to give them, leave them good environment and alleviate poverty also to eradicate
barriers which stops some forces to choose future generation their own needs freely. Environment is
our common social asset which we should take care at the same time at the same value. While many
poor countries solving their own current problems and forgot about future generation needs. Of
course one of these countries is Pakistan. As we stated in previous sections there are many poor
peoples in Pakistan and their daily problem is how to find money to feed their children, and they
never think about future of their children of course they think but they can not afford for that, for
example they don’t have enough money for school and college fees, after growing up they have to
go out to find some money not freely but they have to, if you ask some questions regarding their
inside feelings about dreams they all wanted to study at Universities be teacher, doctor scientist and
so on. Akhuwat started its mission in 2001 and till 2006 they already have given 132 educational
loans for poor families to go to universities. Also many poor people can not afford to make a
wedding for their children, and Akhuwat given out 218 marriage loans for poor people. And these
educational loans are giving their return to sustain future generation children in order to gather loans
to study at universities for their poor friends they help to organize to create web page for Akhuwat
which helps to gather donations for poor people online. These are the students which Akhuwat help
them by giving educational loans as a result they are helping as working in voluntary basis to gather
loans for their friends to study at universities. (Akhuwat’s Feasibility report-1, p. 4)

6 Conclusion
Microfinance is emerging sector in Pakistan because Pakistan is attractive market for MFIs with a
population more than 160 million and two third of population is rural based. Need of microfinance
is higher than any other country because more than 17 percent of total population are living under
poverty line and almost 7 percent among total poor people are ultra poor. Due to illiteracy, poor
health facilities and physical infrastructure, condition of poor is becoming worst. Furthermore,
poor’s accessibility to finance is very limited and even having innovative ideas for setting up
business, they have no amount to start their business. This situation reflects a very bad picture about
poverty and increase the need of microfinance and its accessibility to maximum poor people. Steps
should be taken on public and private sector to increase the outreach of microfinance.
Entrepreneurship has been neglecting issue in government policies. Today, SMEs and
microenterprise are playing important role in economic activities of every country. But in Pakistan,
generally, owner of SMEs and especially of microenterprise are doing their business in
conventional ways. They don’t bring any change or innovation in their production system and
business strategy which result in poor productivity. On microenterprise level, in our opinion,
entrepreneurship has become important because by bringing innovation in their production system
or business operations, they can save resources, utilize in more productive way and can get
productive results. Micro entrepreneurship should be encouraged by MFIs and Government should
give entrepreneurship friendly policies.
Microfinance and entrepreneurship bring a new ways for business. Poor, generally, more sensitive
for their business, and work hard and they have no other option to survive therefore they always
think about their business and try to do something new if they have opportunity. Implementing
entrepreneurial ideas in microenterprise bring more profit and productive result. Therefore,
combination of microfinance and entrepreneurship is a very effective development tool that can
alleviate poverty and empower people with more speed.
Lending methodology of Akhuwat is Qard-e-Hassan, a pure Islamic way of microfinance. As we
discussed that Akhuwat is charging 5 percent of total loan as membership fee, but they are bearing 7
percent expense per loan. According to Akhuwat, by increasing their operations, they will minimize
their expense and bring it to 5 percent. We reached on this result that this will not be a consistent
way in future to minimize the cost because by expansion in operations, there will be need of more
expense because of setting up of offices, hiring people and other utility expense. Therefore, to
progress in consistent way, Akhuwat should adopt additional strategy of financing with Qard-e-
Hassan. In our opinion, Muharabah will be very suitable for lending loan because for Akhuwat, it is
the easiest way to do. Akhuwat has offices near to Mosques, frequent interaction with people and
borrowers, and field staff meet extensively with borrowers, so by Muharabah, Akhuwat can
purchase products or material or anyone which borrowers need, and put some profit and give to
borrowers. By this way, Akhuwat can increase profitability, minimize administrative cost and put
profit in credit pool for further lending or to use in expanding operation.
Akhuwat is giving loan to individuals, and have finished giving loan in solidarity groups. We
investigated this issue and raised questions during interview from different professional and reached
this consensus that solidarity-group-lending is more effective than giving loan to individual because
to handle individual loan, more expense is used. And when there will be thousands of borrowers
benefited from Akhuwat, it will bring a huge burden of administrative cost on organization that can
effect the sustainability of Akhuwat. Akhuwat should adopt both strategies of lending loan;
individual loan and solidarity group loan. They can differentiate both by defining locality. If locality
is dense by population, then adopt group lending otherwise individual loan.
In answering to sustainability and social entrepreneurship, we tried to find out the works done in the
field of “Social Entrepreneurship” and its impact to the sustainable development which set
millennium Development Goals by United Nations. And use these theories toward our case study
Akhuwat which works in the field of Micro financing with its new loaning model created according
to “Shariah” by Dr Amjad Saqib and investigate what they did to alleviate poverty and contribution
to sustainable development. .
As a result we find out that Akhuwat is non for profit organization which gives interest free loans to
the poorest people of Pakistan and for sure even in little amount they reduced poverty. And their
one of the most important ideology that everybody at first must think about their local problems, if
they look at problems locally, there would be no any global problems in the world. Sustainable
development problem now globally dispersed and day by day growing number of initiatives of
Social Entrepreneurs trying to add their little value to social value creation. Also Dr Saqib said that
in the field of Social Entrepreneurship there must not be any words about profit, the core value
under it must be social value creation. This organization is contributing economic, social, health and
educational values to sustainable development. In short, some headings according to the
Brundtland’s (1987) definition of sustainable development, Akhuwats contributions are: Satisfying
basic human needs by creating job places for people and giving them opportunity to sustain their
lives by themselves by Providing poor layer of society with group and individual loans without
interest; Changing norms and behavior to create opportunities, Akhuwat started its work to give
loans to women, their rights in society and economic life increased and with these activities
Akhuwat changed the rules and perceptions about women also reduced inequality between genders;
To think and create environment for future generations need, Akhuwat till 2006 have given 132
educational loans for poor families to go to universities. Also many poor people can not afford to
make a wedding for their children, and Akhuwat given out 218 marriage loans for poor people.
In general, as we found out during the research, the contribution of Akhuwat to sustainable
development is enormous. We can proudly say that Akhuwat’s way of business is totally Social
Entrepreneurial. It has got innovative new model of interest free microfinance and change maker
leaders like Dr Amjad Saqib, is alleviating poverty and helping rural poor people with new ideas to
create healthy society.

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(A) Table 3: Microfinance Outreach of MFBs (SBP(d), 2007,p.19)

Micro Finance Outreach of MFBs
2002 2003 2004 2005 2006
Institution age (yrs) 2 3 4 5 6
No. of Branches 39 56 75 91 145
Total No. of Borrowers 56,939 95,090 177,648 248,091 326,498
No. of New Borrowers 56,939 38,151 82,558 70,443 78,407
Total No. of Depositers 2,773 10,150 18,589 32,577 70,891
No. of New Depositors 2,773 7,377 8,439 13,998 38,134
Average Loan Size (Rs) 6,332 7,969 7,340 9,450 8,721
Average Deposit Size 23,231 38,625 25,229 20,867 20,731

(B) Table 4: Mode of financing and deposits (SBP-2,2007,p.6)

(Rs. In million)
Modes of Financing June-07 Sep-07 Inc./Dec.

Murabaha 35,767 36,469 2%

Ijarah 24,038 25,738 7%

Musharaka 582 1,394 139%

Mudaraba - 84 -
Dimin. Musharaka 15,877 23,314 47%
Salam 952 1,276 34%
Istisna 757 39 -95%
Qarz/Qarz-e-Hasma 6 8 28%
Others 1,663 927 -44%

(C) Modes of Islamic financing

Diminshi Mudarab Others,  Diminshin Musharak Istisna,  Others, 
Mushara g  Salam,  a, 0.70% 1.00% 2.10%
ng  Salam, ka, 1.60% a, 0.10% 2.10%
Mushara1.40% Musharak 1.20%
kah,  ah, 
26.10% 19.90%
Murabah Murabaha
a, 40.90% , 44.90%

Ijarah,  Ijarah, 
28.80% 30.20%

Fig 15: Modes of financing- June 07 Fig 16: Modes of financing- Sep 07
(D) Education statistics of Pakistan

Fig 16: Education in Pakistan, Primary NER, GER and Literacy Rate (Source: Akram Khan, p.15)

(D) Unemployment rate

Fig 16: Unemployment rate in rural, urban and country as a whole

(E)Table 5: Budgetary Poverty Related Expenditure by Sectors as % of GDP (source:

Sectors 2003-04 2004-05 2005-06
Water supply/sanitation 0.10 0.10 0.13
Educaiton 1.73 1.78 1.84
Health 0.48 0.48 0.51
Social Security and Welfare 0.07 0.03 0.10
Rural Development 0.33 0.23 0.19